Town & Country Planning Tomorrow Series Paper 20 sharing the uplift in land values a fairer system for funding and delivering housing growth

Dr Nicholas Falk URBED Trust Executive summary approach to taxation or land nationalisation. The Raynsford Review of Planning recommended that This Town & Country Planning Tomorrow Series councils should be more proactive. And the Planning Paper considers how we can use land reform to (Affordable Housing and Land Compensation) Bill achieve a fairer society while also promoting local put forward by Helen Hayes MP calls for a legal economic growth and a better environment. The duty to ‘capture betterment where it arises’. Yet first version of this paper was produced as a blog despite the many reports produced by parliamentary for the Royal Society of Arts’ Inclusive Growth committees and think-tanks of all political colours, Commission on disparities in delivering services.a land assembly continues to be a political hot potato, A second version, incorporating a range of possible unlike in most other European countries, where solutions, was produced as a think-piece for the spatial planning and urbanism are more proactive – UK2070 Commission working under Lord Bob as in France, Germany and the Netherlands, for Kerslake, which is concerned with narrowing example. A wider and more compelling set of regional differences.b Parts of the argument have arguments are needed that can gain all-party also appeared in an article in The Political Quarterly support – for example rebuilding our ‘real’ economy and in illustrated reports for Shelter and the Labour while safeguarding our legacy of natural capital. Party on increasing the delivery of homes that are Many British towns and cities need to change widely affordable.c direction if they are to become more inclusive. At This Tomorrow Series Paper goes further by the same time, we need to deal with challenges considering the wider issues of land value taxation such as climate change by growing well connected, and the funding of the local infrastructure needed medium-sized towns and cities in more sustainable to double the rate of housebuilding. Specifically, it and fairer ways. The actions required include giving shows how previous proposals could be implemented. streets back to people, creating better access to Reform of our taxation system is increasingly green and blue areas, and above all making good seen as fundamental to improving planning. The housing more affordable – all in what some call a Raynsford Review of Planning in England, carried ‘Green New Deal’. out for the TCPA, concluded that: Achieving sustainable urban regeneration depends ‘the Treasury must partially redistribute capital on unlocking hidden or forgotten assets, such as gains tax and stamp duty to invest in the nation’s waterfronts, historic buildings or town centres, in deprived areas – with councils given powers to order to narrow spatial inequalities and generate compulsorily purchase land at a price which financial capital. Place-making needs to be more allows communities to benefit from the uplift of inclusive, and this will require a massive increase values created by development.’ d and shift in investment. The case for land reform starts with raising additional finance to help fund The UK faces a huge bill if it is to upgrade its local infrastructure, the subject of the second worn-out infrastructure to cope with the demands Section of this Tomorrow Series Paper. on it – amounting to some £500 billion (and a billion is a thousand million!). There is growing agreement Achieving inclusive growth that building the housing we need, and creating a Section 2 deals with the relationship between more sustainable (and fairer) society, depends on land values and housing affordability and hence greatly increasing investment in local infrastructure, inclusive growth, and explains why supply fails to especially transport and affordable housing. But respond to demand. If we are to raise the funds no-one can agree on how this should be paid for, needed to upgrade our infrastructure, the risks or how regional disparities are to be addressed. and costs of development need to be reduced. As over Brexit, the UK seems stuck. So could land Imaginative packaging of funds from different value capture offer a way out? sources needs to be replicated much more widely. Joining up development with infrastructure Changing direction investment will produce places that not only look The first Section of this Tomorrow Series Paper better but are also fairer and have less impact on deals with why towns and cities need to change natural resources and the environment because direction by mobilising under-used land and making development is concentrated where the buildings (and people) better connected. Examples infrastructure can cope. In this way development such as King’s Cross in London or the London should encounter less opposition, and charges on Docklands show how a transformation can be secured landowners may even win popular support. over time, as does earlier experience with the post- It has been argued that too much of our national war New Towns or other post-war reconstruction. transport budget is devoted to grand projects such The TCPA has a long record of promoting Ebenezer as HS2, without the local infrastructure to support Howard’s idea of using the ‘unearned increment’ of them, and that these projects largely benefit London. land value uplift to build Garden Cities, in an alternative By instead focusing capital spending on making

2 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values A plan to extend Oxford as Uxcester Garden City won the 2014 Wolfson Economics Prize urban conurbations or metropolitan areas work bonds, private investment can be increased in better, much greater benefits could be secured for new projects that boost wealth generally (and less cost. Such a programme of works could also possibly public resistance to them can be reduced), be used to create better jobs both in building and without losing the importance of public finance in running local transport. Information technology could maintaining basic standards. be used to differentiate between land and buildings, Changes to property taxation are required to raise and to identify areas that have untapped development more funds from areas where land values are potential. The results would be more intelligent or highest (basically the Greater South East), thus smarter than leaving cities to sprawl. Public support enabling national funds to be used to rebalance the could be secured by concentrating changes in economy and invest in areas where the social and taxation on the areas affected by strategic projects. environmental benefits will be greatest.

Funding local infrastructure Planning for smarter urbanisation Section 3 considers how local infrastructure – the Section 4 considers how to develop strategic key to providing new housing – can be funded. It spatial plans in ways that use scarce resources reaffirms the value of charging ground rents to better while building the housing we need. Deciding cover the cost of utilities, and also of changing the between competing projects requires new forms way that domestic buildings are taxed. Previous of multi-criteria analysis that would benefit from reviews such as those carried out by Uthwatt (in changes in the way that property taxes are set and 1942) and Mirrlees (in 2011), as well as more recent collected. reports such as the IPPR’s A Wealth of Difference The benefits of building more housing, or a better (2018), have called for reforms to recover more from planning system, cannot be achieved without wealthier property-owners. tackling the land issue and the related issue of By linking the raising of finance to projects that joining up development and infrastructure. Changes win local support, as US cities notably do by issuing to the planning system need to deal differently with

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 3 areas according to levels of demand, and hence benefit, not just from developers, while development economics would guide investment to encouraging small businesses or housing where it will create the greatest value. The beauty development to make use of empty space, of such an approach is that most of the country such as in town centres. would be unaffected, while areas that need to ■ Proposal 5: Property tax reform needs a Royal change would be properly resourced. Commission to recommend the best ways of Different approaches should therefore be introduced rationalising the various sources of funding such in ‘growth areas’ with high land values, where the as council tax, inheritance tax, stamp duty, and economy is strongest, and in ‘regeneration areas’, the Community Infrastructure Levy in order to where land values are relatively low and development provide local authorities with better and fairer costs can exceed sales value. But in both situations source of funding. there is an overwhelming case for securing more ■ Proposal 6: Growth bonds can be used raise benefits, such as affordable housing, in areas that private and institutional finance for the will benefit from improved infrastructure. While the infrastructure needed for strategic new housing subject is complex and controversial, it is fundamental in areas with relatively high property values. to achieving the national transformation that all ■ Proposal 7: Community or co-operative political parties say they want – and to helping to investment banks should be set up at a regional restore local democracy in the process. level to make it more attractive for people to act collectively in tackling common problems Implementing a step-change such as affordability and climate change, while Section 5 summarises 11 proposals for changing reducing the need for business-owners to the way that development is planned and funded, put borrow against the value of their homes. forward with the general aim of investing in projects ■ Proposal 8: A Municipal Investment Corporation that will be self-funding over the longer period while should be set up to work in areas where there producing short-term social and environmental is support for boosting local authority capacity benefits that would command local support. in devising and evaluating good projects, and The proposals are grouped in terms of the also to package finance from all sources to help reforms to spatial planning, public finance and local raise investment levels to European levels.e government organisation needed to produce the ● Local government organisation to rebuild capacity: step-change that the UK requires: ■ Proposal 9: Development Corporations would ● Spatial planning for better returns: achieve smarter urbanisation and rapid growth ■ Proposal 1: Spatial growth plans should by joining up land and infrastructure where distinguish between areas in terms of their major public investment is required. economic potential and hence land values in ■ Proposal 10: Community land or development order to promote self-funding development in trusts could regulate occupation and create fairer growth areas where it will add most value, societies with a broader range of tenures. without penalising areas where regeneration is ■ Proposal 11: Local infrastructure finance trusts needed or that should be left untouched. should be used to offer a means of pooling ■ Proposal 2: A better model for land assembly contributions from private investors and should tap ‘marriage value’ from putting government. adjoining land together and avoid ‘free riders’ (who hold land back until values have risen), Notes thus opening up sites to a much wider range a Inclusive Growth: Putting Principles into Practice. of developers and occupiers. Development Inclusive Growth Commission. RSA (Royal Society for frameworks should be used to help control land the Encouragement of Arts, Manufactures and values in areas where uncertainties are high. Commerce), Mar. 2017. www.thersa.org/discover/ publications-and-articles/reports/inclusive-growth- ● Public finance for infrastructure: putting-principles-into-practice ■ Proposal 3: A development land charge, b See the UK2070 Commission website, at implemented as a levy on the sales value of www.uk2070.org.uk new housing in growth areas, could replace the c Available at from the URBED Trust website, at Community Infrastructure Levy and possibly www.urbedtrust.co.uk other forms of property taxation to provide a d ‘Raynsford Review of Planning final report published’. straightforward means of funding local Press Release. TCPA, Nov. 2018. infrastructure. www.tcpa.org.uk/news/press-release-raynsford-review- of-planning-to-be-launched-on-20-november-2018 ■ Proposal 4: Land value rating should be used in growth areas to redistribute wealth and narrow e N Falk: Funding Housing and Local Growth: How a British Investment Bank Can Help. Smith Institute, spatial differences, alongside bringing values up May 2014. www.smith-institute.org.uk/book/funding- to date through rates reassessment. Funds housing-and-local-growth-how-a-british-investment- need to be raised from all property-owners that bank-can-help-2/

4 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 1 value tax in Canberra, the capital of Australia. And Changing direction split-rate property taxation has helped to promote the regeneration of the old steel city of Pittsburgh in the USA (see Box 1). Indeed, the USA has largely ‘Things fall apart; the centre cannot hold, relied on government to provide the foundations for Mere anarchy is loosed upon the world,’ economic growth, according to a new book by Ian WB Yeats, in The Second Coming Wray.4 So we should not assume that the free market is the only way to produce successful Britain is at a turning point, where none of the places. concerns that are tearing our communities apart can be met without fundamental changes in the way we Social justice and inclusive growth plan, fund and organise urban growth. This requires A key justification for planning – and indeed for the country to harness escalating land values – a tool government – is to create a fairer society in which that has been neglected for too long.1 ‘Generation the public interest outweighs private profit. Experts Rent’ is finding a voice, with likely political impact, on the subject, such as Tony Crook and Christine while the effects of climate change call for a longer- Whitehead,5 agree that when it comes to land: term and wider perspective. Young people feel ‘Land values increase for three reasons: (i) increased alienated by the seeming impossibility of acquiring a prosperity, (ii) new infrastructure impacting on e.g. home of their own, and call for radical changes now improved accessibility and (iii) planning consents that will help to protect life on our planet. Elderly permitting new physical development and/or people are worried by the escalating costs of care change of use. Development value is the difference and by an uncertain future. Planning is not delivering between the value of land in a new use and its what it promises; we need more inclusive growth, existing use value. Taxation of land value should not growth at any cost. We also need to find a new be designed to promote economic efficiency (e.g. way of paying for what we all value, and what might by addressing externalities), improve equity and be called the ‘common wealth’. be consistent with taxation principles.’ The scale of the housing task is huge; the report of Shelter’s Commission on the Future of Social However as their review article stresses, rather Housing2 called for 100,000 social housing units to like over Brexit there are strongly held and divergent be built each year, a third of the government’s views over what is both fair and effective. Much of overall target, and many times the current level of the discontent associated with political eruptions supply. URBED’s case studies for the Commission 3 like Brexit or protests over major road schemes are discovered that the countries we admire for their due to a sense of injustice – that some are getting quality of life do not rely as much as the UK does on more than their ‘fair share’, expressed not just in private ownership or the private sector to solve their terms of class but also in where and how people housing or transport problems. The most pertinent live. The influential moral philosopher Michael examples are in Denmark and the Netherlands, Sandler asserts that ‘Democracy does not require where housing is more affordable and there is no perfect equality, but it does require that citizens stigma associated with living in social housing. share a common life.’ 6 In his seminal work on social Many of the most successful European cities use justice, the American philosopher John Rawls state investment banks to fund local infrastructure, argued that a good society requires more than just rather than relying on either private developers or rules to protect basic liberties.7 The rules also need government grants. They also tax land differently. to operate to the greater benefit of the least- There is also recent experience of introducing land advantaged members of society. Fairness and

Box 1 Pittsburgh’s recovery – the benefits of land value capture

In the US state of Pennsylvania a split-rate property tax (in which tax on buildings is divided from a tax or charge on land) running from 1913 to 2001 featured a land tax set at nearly six times the tax on improvements and so encouraged inner-city construction. Even after the system was abandoned, the Pittsburgh Improvement District still applies land value taxation as a surcharge on property taxes. The results are a thriving downtown area, with old buildings adapted to new uses – for example, a redundant railway station was turned into a ‘festival market place’. Community land trusts also work well – for example, Pittsburgh History & Landmarks Foundation takes over properties from Pittsburgh City Council that have not been paying taxes. The driving force has been a succession of entrepreneurial mayors (working with the universities and voluntary organisations), who have transformed Pittsburgh from a polluted industrial city into one of the most liveable and innovative American cities.

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 5 justice are often seen as pillars of what we all prize spaces and historic buildings, which are passed on about our way of life. from generation to generation. This suggests that a Since around 1980 British society has become socially just, advanced society would be one with wedded to what is referred to as the ‘free market’, a higher level of common ownership rather than and property rights have been described as inalienable. private housing, in which neighbourhoods and Yet property values are largely created by public natural beauty would count for as much as private investment in infrastructure such as transport or by property. the protection created by planning controls such as City-ranking surveys by bodies such as Monocle the Green Belts round our cities. Economists have or the Economist Intelligence Unit confirm that the tended to favour competition and an open society cities and societies that are rated the best in which because, on balance, it was seen as distributing to live, such as Vienna or Zürich, have high levels of resources and benefits where they are most needed. common ownership or ‘common wealth’, funded Yet once the distribution of power gets too far out through higher taxes. They are fairer places in all of balance, and monopolistic rent-seeking behaviour senses. Higher levels of connectivity, through, for dominates, the market can no longer be relied on, example better local transit systems or safer and government is justified in intervening to correct cycling, can compensate for not owning your own ‘market failure’. home. Extensive greening can provide some of the The enlargement of the European Union, and its benefits of living in the country. Such places may associated laws, may have kept the peace between also be associated with higher levels of productivity nations but has not worked to the benefit of the least and public health, lower stress levels, and lower advantaged – those who own little or no property, pollution. In recent years, visits to European cities as Paul Collier, former leading World Bank and now that might have served as models for the English Oxford University economist, observes in his recent Eco-towns discovered that, despite national powerful critique The Future of Capitalism.8 He differences, all had local authorities that play a much makes the case for taxing land value uplift as a more proactive role than those in the UK, and that means of resolving fundamental rifts in our society: take the risks of climate change seriously.9 ‘Social democracy worked from 1945 until the Over the last few decades the weaknesses of the 1970s because it lived off a huge, invisible and current system of property ownership in the UK unquantifiable asset that had been accumulated have become overwhelming as inequalities have during the Second World War: a shared identity worsened. The escalation in property values has forged through a supreme and successful national benefited the old and established at the expense of effort… Starting around 1980, this situation was the young and future generations. Other problems disrupted by two coincident but distinct processes: can be seen in our failure to maintain the physical an explosion in knowledge, and globalization.’ environment – for example when streets are not repaired or transport systems break down. There is He goes on to argue for changes in the way that also a waste of scarce natural resources, measured land is valued as an effective route to a fairer society: by the extinction of species or rising levels of water ‘Landowners are usually able to capture a and air pollution. So not surprisingly, with economic substantial part of the uplift in value that should growth lagging behind expectations and inequalities accrue to the agency. This is rectifiable, but the widening, the case for radical change has become drafting of legislation should take care to pre-empt much stronger. The problem is where best to the corrosive effect of barristers and the limited intervene and how. abilities of judges to appreciate, or even care Simply increasing taxation to fund better social about, the public interest.’ services or to equalise incomes will inevitably be resisted in a divided and complex society such as John Rawls went further and asked his readers today’s Britain. But if a charge were to be made on to draw up rules for an imaginary society where capital, much more support could be secured, you could not be sure of your own starting point – especially if the proceeds were used to redress and hence would be likely to favour the most generational imbalances, provide better lives for our disadvantaged. As an example, most would agree children and their descendants, and avoid foreseeable that all should have some form of shelter as of right, calamities. and incentives to act responsibly in renting out space. But the present system of tenure does not The case for radical change seem fair when some benefit from rising house This Tomorrow Series Paper argues for a few prices while others suffer due to their lack of an targeted changes to the way that the private property inheritance or low incomes. What we call ‘equity’ market works in order to create a fairer system that refers both to what is fair and to a share in would win all-party support. Housing should be a far ownership. But much of what we value comes from easier challenge to tackle than re-making our economy. a common heritage, such as waterways, green After all, ‘real estate’ is tangible, unlike income from

6 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values Box 2 House price inflation and widening inequalities

Although most people’s incomes in the UK have stayed relatively constant since 1975, the share of the income going to the top 1% more than doubled to 14%. In October 2017 the Office for National Statistics released information that separated the value of land from the buildings that stand on it, indicating that since 1995 land as a proportion of property value rose from a half to two-thirds, and that land has risen from one third of the UK’s national net worth to over half, much of which is in the form of housing.a In other words, house price inflation has particularly benefited those who own the most land.

a M Smith: ‘Crisis? What crisis?’. RIBA Journal, 2081, Mar. other sources. The well publicised failings of the have failed to appreciate its peculiarities. Inequalities private rental market and the shortfalls in securing are worse in the UK than in any country other than new social housing could justify taking over the land the USA. Even a Conservative-leaning journal like needed to build more housing of all tenures, as the Economist has argued that the ‘time may be occurred in British cities that had been heavily bombed right for land-value taxes’.13 A recent Labour Party during the Second World War. While it is hard to Green Paper has proposed setting up an English know what future employment or even methods of Sovereign Land Trust to ‘enable more proactive buying transport will be like, we can forecast future housing of land at a price closer to existing use value’, with requirements with much more confidence and take possible changes to the rules for compensation.14 the necessary action to overcome constraints. And a thoughtful report edited by Guardian columnist Approaches include adopting the European practice George Monbiot15 has put forward a comprehensive of making it easier to rent a good home, and to build set of proposals for ‘changing the way our up equity, through co-operative as well as socially fundamental asset is used owned and governed’. owned housing. Economists such as Paul Cheshire have Yet development takes time, and depends on demonstrated the close relationship between the making the most of hidden wealth and neglected quality of life in a city and economic success, and opportunities, as well as well targeted public the value of what is called ‘agglomeration’.16 Now investment. So government needs to use national that human or social capital has largely replaced imperatives to double housing output, modernise traditional machines, industrial cities have tended our energy and transport systems and reconcile old to decline, while property values have grown in and young in ways that tackle the root causes of metropolitan cities and country towns. Increasing inequality and distress. We need to learn and apply the rate of investment to match continental levels lessons from European cities and regions that have has to be paid for, and concerns about ‘viability’ have transformed their position over the last half century tended to dominate local planning decisions. Yet the – a period in which British industrial cities have development of the real economy, as opposed to generally lost ground.10 the paper one, is inextricably related to the health Successive reports have shown how a broken of our towns and cities and the availability of good British system of spatial planning and development housing and local transport. Targeted investment fails to get housing built where it is most needed, should pay off – although regrettably we seem to yet we still put strategic projects through the same have lost the skill to locate housing where it will do mill. At the same time, our financial system has the least harm to the environment. boosted the values of existing property in favour of Although there will be always be resistance to the established and wealthy (see Box 2).11 As the change, the tide is turning as the arguments mount Chinese philosopher Lao Tse memorably said some up. Bodies as diverse as the National Infrastructure 2,500 years ago in a book called the Tao Te Ching, ‘if Commission and the House of Commons Housing, you do not change direction you may end up where Communities and Local Government Committee, you are heading’. He went on to say that ‘a journey through its Land Value Capture report,17 as well as of a thousand miles begins with a single step’. numerous think-tanks, are calling for radical changes There is no way that most of those without inherited in how the benefits from development and growth wealth can any longer save enough for the deposit are shared. As the Housing, Communities and Local needed to get on the housing ladder, and many Government Committee concludes: justifiably feel exploited and excluded. A recent ‘Extra funding for new local infrastructure and comprehensive review of the economics of land affordable housing could be raised by wide-ranging argues12 that ‘Property in land is thus both ‘freedom’ reforms to how the increase in value of land and ‘theft’’, and that successive British governments resulting from public policy decisions is captured.’ 18

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 7 The impetus for change can also come from in London pay the highest prices to live as near to comparisons with other places that seem to have the centre as they can, for generations many of those done better. When URBED compared three in the rest of the country have moved to country continental post-industrial towns – Gothenburg, towns, villages and the suburbs for a better life. The Lille, and Rotterdam – with their English result is a very unbalanced society – one of the most counterparts, local authority representatives were unequal in the OECD. astonished by how continental cities were not Although there are impressive examples of places expecting the private sector to sort out their in the UK that have turned around (King’s Cross and problems or deliver public services but took control the area around Stratford in London, or Central of their destinies.19 But a transformation to such a Manchester, or the southern fringe of Cambridge, state cannot be achieved without fixing our broken for example), they require huge and sustained levels local government financial systems and rediscovering of public investment, and so seem exceptional and strategic spatial planning and what creates a fairer unaffordable in general. Yet successful transformation society. It is significant that the Scottish Land follows a pattern – one which is replicable, even Commission has been set up specifically to advise though every place may look different.23 In Sir Peter the Scottish Government on tackling inequities, Hall’s final book, Good Cities, Better Lives, he and I and it seems that more account is being taken of showed how British towns and cities could catch European good practice than is the case in England.20 up with their continental counterparts by applying The built environment is also important because the ‘art of urbanism’.24 The success stories grew it is where most of our savings are accumulated, incrementally and developed in steps – in a process whether as individuals or through institutions such more like a game of dominoes than a jigsaw puzzle. as pension funds and insurance companies. Land For growth rarely follows masterplans, but is values underlie the loans made for future investment much more organic.25 It responds to technological projects, and hence productivity and economic innovations, such as the electric suburban railway growth. So even in an age dominated by the and tram, that support or generate local economic connections of information technology, access to development. Development takes place in surges, property remains critical to the quality of most and the changing patterns can often only be people’s lives. While Karl Marx focused on the discerned and evaluated long after the event.26 injustices of a class system based on the ownership So it is vital to make the right strategic choices of the means of the production, in the 21st century, when it comes to investment in both new as Thomas Piketty clearly showed in his influential infrastructure and major housing schemes. Towns book on ‘capital’,21 injustice is bound up with the and cities need to catch the tides when they flow, ownership of property, especially housing. not fight against them. The Housing White Paper Simply increasing taxation to fund better social and subsequent revisions to the National Policy services or to equalise incomes will inevitably face Planning Framework (NPPF) suggests that a change some resistance, but if the underpinning justification of direction would be welcome;27 and the Labour for action were to redress generational imbalances, Party’s Housing Green Paper offers many proposals to provide better lives for our children and their aimed at increasing access to affordable housing.28 descendants, and to avoid foreseeable calamities, But there is still an unresolved ideological debate over much more support could be secured. So in rethinking whether we need more planning or less, and how changes in the ownership and distribution of housing, far the market can be relied on to meet social needs. especially in planning for new settlements, we need The solution lies in better planning. ‘Smart’ cities also to consider the impact on employment and – where people with choice most want to live or productivity, on transport and accessibility, and on work, ranging from Cambridge to Freiburg and health and wellbeing. Singapore – are the product of neither government intervention nor a free market. Rather, they benefit The art and science of urbanism from good strategic planning, as comparative The process of urban development is far from studies by international bodies such as the EU and scientific, as it involves balancing a multiplicity of the OECD have clearly shown, assisted by land objectives and taking risks – which is why urbanism assembly and a responsive development market.29 is best called an art, and is very different from The process is quite easy to understand. Case conventional planning. There is no simple way of studies of exemplary housing schemes drawn up creating a fairer society, because the UK is so divided for the Housing Forum30 were readily structured spatially, as well as in many other ways. London and around a simple ‘ABC’, of ambition or vision, the rich South East match the best in Europe, while brokerage or deal-making, and above all continuity our provincial cities generally trail behind. Indeed, the (i.e. persevering for several decades or more). The Centre for Cities compares the poor performance main key is local control. Smarter urbanisation of the UK’s former industrial cities with that of the requires planning that is proactive, not reactive; accession countries in Eastern Europe.22 While those driven by posterity not austerity; and backed up by

8 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values Freiburg built the exemplary Rieselfeld and Vauban developments on new tram lines to the centre good governance – leadership that persuades rather ‘unlocking the public wealth of cities’.31 Thoughtful than compels. Investors, whether private or public, people on all political sides have called for radical want certainty over infrastructure before they make change. Will Hutton, author of The State We’re In major commitments and deals have to be struck. and an Observer columnist, together with Lord Planned new settlements built on Garden City Adonis, who most recently was Chair of the principles would relieve the pressures as the New National Infrastructure Commission, have come up Towns and Comprehensive Development Areas did with a powerful and concise book aimed at ‘saving after the Second World War, and would also allow Britain’ from the perils of Brexit. In one key local councils to build housing that is ‘future-proofed’. paragraph near the start they argue: The Housing Forum case studies also showed ‘To blame housing shortages and soaring house that the other key to successful transformation is prices on immigrants is to miss the mark. Britain’s enough control over strategic land to harness the housing crisis is again a crisis of our own making, uplift in land values. This is a principle originally set an interaction of the way we restrictively plan, out by Ebenezer Howard and used in Letchworth under-tax, under-build and oversupply housing Garden City and then applied on a much larger scale finance.’ 32 in the post-war New Towns. The results of loosening controls by mischance have been house price Equally, on the centre-right of the Conservative inflation among the highest in Europe, as well as some Party, a think-tank called Onward has published a of the greatest inequalities. This is in marked contrast radical set of proposals for increasing housing to the situation in cities like Vienna or Rotterdam, supply by returning power to local authorities. The where local government has retained much greater author, Neil O’Brien MP, calls first for action to: freedom and power, and owns a significant ‘Give councils new Compulsory Purchase Order proportion of the land available for development. (CPO) powers and borrowing capacity so they can buy land and put more development into planned Why better spatial planning is needed new villages, towns and cities. Require councils Planning in the UK has become confused with to plan infrastructure on the basis of cumulative regulation, and the link with vision has been lost. We impacts, not just individual applications.’ 33 have preferred to argue every case ‘on its merits’ rather than clearly indicate where growth is or is not At the start of the Industrial Revolution Adam welcome. The goal should not be an ‘end state plan’ Smith wrote: but rather, as Bruce Katz and others at the Brookings ‘Human society, when we contemplate it in a Institute incisively recommend, a framework for certain abstract and philosophical light, appears

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 9 350,000 Economic growth (shown below date axis) 350,000 Negative Below-trend Above-trend growth growth growth 300,000 300,000 oia os rcs £ Nominal house prices,

250,000 250,000 Nominal house price Local authorities 200,000 200,000 Housing associations 150,000 150,000

100,000 100,000

New dwellings per year New dwellings Private market 50,000 50,000

0 0

1946 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2013

Fig. 1 Housebuilding levels have remained flat since local authorities stopped building; prices have escalated Source: Shelter and the University of Sheffield

like ... an immense machine, whose regular and 2 harmonious movements produce a thousand Achieving inclusive growth agreeable effects.’ 34

While people live and die, their towns and cities, While much could be achieved through better along with their possessions, remain as their legacy. management of our housing stock, new housing is So as well as the satisfaction that comes from what also required to allow for demographic and other people personally own, there are also pleasures changes, such as an ageing population, often living from what we have in common, whether it be fine alone. streets and cultural facilities, or social services we The eruption in house prices has had little effect can rely on, or great transport systems, as well as on housing supply numbers, as the chart in Fig. 1 the countryside and all that forms our ‘natural clearly shows. Instead, land values have escalated capital’. These make up what might be called our far beyond house prices in much of the UK, to ‘common wealth’. The purpose of strategic planning the point where unaffordability threatens future should be to ensure that this precious capital is economic growth, environmental wellbeing and maintained and augmented over time. social stability.35 The unresponsiveness of the market is linked to Conclusion an over-reliance on a relatively small number of Many UK towns and cities need to change direction private housebuilders to build the homes we need, if they are to become more inclusive. At the same as Sir Oliver Letwin’s Independent Review of Build time we need to deal with challenges such as climate Out confirmed.36 It concluded that there is a good change by growing well connected medium-sized case for sharing the uplift in land values that results towns and cities in more sustainable and fairer from public policy, especially in areas where values ways. This includes giving streets back to people, are highest. creating better access to green and blue areas, and For almost half a century we have been building above all making good housing more affordable – too little and letting house prices and rentals run what some call a ‘Green New Deal’. away. Much of the escalation of land values is due Achieving urban regeneration in sustainable ways to a kind of ratchet that encourages speculation. depends on unlocking hidden or forgotten assets, such With little or no holding cost, but much publicised as waterfronts, historic buildings or town centres, in gains, landowners are advised to hang on to land. order to narrow spatial inequalities and generate Yet simple changes to the way that land is valued financial capital. Place-making needs to be more and land value uplift is captured (or shared) could inclusive, which will require a massive increase and hold the key to narrowing disparities in wealth. They shift in investment. could provide a platform that people of all political The case for land reform starts with raising persuasions could support because, in the face of additional finance to help fund local infrastructure, inequalities that have become grotesque, a which is the subject of the next Section. reformed system would be fairer for all.

10 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values Rethinking land values A perceptive pamphlet from Civitas called The Land Question 37 makes the case for reforming the land compensation rules to make it much easier for public bodies to acquire land at close to its existing- use value. Land matters because the price of a house only partly reflects the cost of construction. While the costs of construction are quite similar across the country (allowing for variations in size and quality), it is the price of land that explains the main differences between costs in different areas. Land values help to keep house prices excessively high, as there is a ‘ratchet’ when it comes to expectations. Economists such as Ricardo used to consider land as a separate factor of production, and were very critical of ‘rent-seeking behaviour’ and barriers to entry that favoured oligopolies. The LSE economist Professor Paul Cheshire has argued in a series of blogs that planning (and Green Belts) have been used to defend privilege and hence reinforce house price inflation. Up until > £5,000,000 recently, when attitudes to urban living changed, £3,000,000 - £5,000,000 those who could do so often went to live beyond £2,500,000 - £2,999,999 the Green Belt and used their cars to get to work, £1,250,000 - £2,499,999 thus adding to congestion on the roads.38 There are < £1,250,000 huge variations in land values between different parts of the country, as maps of property values Fig. 2 Residential land price per hectare in England clearly show (see Figs 2 and 3), with the highest Map from Paul Cheshire, using 2007 data

Percentage Percentage house price house price change by change by postcode postcode area, district, 2007-2015 2007-2015 40% 40% 20% 20% 10% 10% 5% 5% 2% 2% 0 0 -2% -2% -5% -5% -10% -10% -20% -40%

Fig. 3 House price change in England, 2007-2015 – opportunities for land value capture are mainly near London Source: © house.briskat.com, using Land Registry, Ordnance Survey and Royal Mail data, with information generated by https://a.plumplot.co.uk

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 11 Labour 13% Land and property

10% Consumption

47% Capital

19% Other

11%

Fig. 4 Composition of total British tax revenue, 2103/14 Source: Mapping Britain’s Public Finances: Where Is Tax Raised, and Where Is it Spent? Centre for Cities, 2015 values in areas that are in range of jobs in London accounts for much of the value, and that value is and the South East. In 2017 in Cambridgeshire they largely created by collective efforts (or the common varied from £5.96 million per hectare in the city of wealth). Most importantly, it is derived from the Cambridge (which is just 45 minutes by rail from infrastructure of transport, utilities, education and London King’s Cross) to £2.13 million per hectare in health facilities that make living possible and East Cambridgeshire and only £485,000 per hectare pleasant. Planning then distributes most of this in Fenland (almost the lowest land value in the surplus to those fortunate enough to own the land country), where the principal town of Wisbech is (or have options on it) already. cut off by its lack of rail and road connections.39 Writers as diverse as Henry George, Ebenezer Significantly, over the last decade house prices Howard and Winston Churchill have expressed have risen most in the very areas where land values shock over how those who happen to inherit land were already highest. These are the areas that offer seem to get most of the uplift from land values, the best opportunities for land value capture. Land without having to exert themselves or take risks. is very different from other factors of production, Fred Harrison, an eloquent advocate for land value because, as Mark Twain famously pointed out, taxation, points out that land value uplift could have ‘they are not making it any more’ (except in the funded the Jubilee Underground line extension to Netherlands, where land for new housing has been London Docklands if it had been properly tapped reclaimed in the Polders!). It is the location in (worth some four times the cost) instead of going relation to jobs or wealth creation, not planning, that as ‘windfall’ presents to fortunate landowners and explains the main disparities. As Martin Adams puts speculators.41 Harrison argues that our system of it well in a comprehensive review of the subject:40 expecting house prices to drift ever upwards is not ‘Due to its inherently limited supply for each only economically disastrous, but also grossly unfair: location, land obtains its value from the natural, ‘The State sponsored device for making the rich social and cultural wealth that exists in its richer (and the poor poorer) means that for most surrounding environment.’ of their lives, rich folk enjoy public services without paying for them.’ But, as the property value maps suggest, land prices are also affected by access to good jobs, A powerful report for the Labour Party, edited by which is why values are highest around London and Guardian columnist George Monbiot,42 has brought the South East and a few other metropolitan cities. together a series of proposals for tackling different Surveyors like to point out that land values are aspects of the problem, some of which were essentially a ‘residual’, i.e. the difference between proposed in an earlier version of this paper written for what a house costs to build and what it will sell for. the UK2070 Commission. The report’s key message But they also love to repeat the mantra that ‘there is that land has become far too important as an are only three things that matter in property: element of the UK’s net worth – 51% compared location, location and location’. It is the location that with 26% in Germany. The value of land increased

12 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values Box 3 Uxcester Garden City – a prize-winning model

Using an imaginary city called Uxcester, in the winning entry to the Wolfson Economics Prize 2014, David Rudlin and Nicholas Falk showed how to double Oxford’s population over 30 years.a The city has some of the least-affordable housing in the country, unacceptable spatial inequalities, and severe congestion. The competition entry proposed a series of sustainable urban extensions within 10 kilometres of the centre to provide homes for 50,000 people. These would reduce congestion and make life better for those on low incomes. The new housing would use land that lies outside the flood plains and areas of natural beauty, but that can be connected to jobs by good public transport and cycling. It would take some 5%-10% of the Oxford Green Belt (which could be extended elsewhere) but would improve biodiversity and provide country parks to reduce flooding, and also safeguard treasured villages from unwanted development. Agricultural land that is currently worth £10,000-£25,000 a hectare would be bought for ten times that amount (at, say, £200,000 a hectare), to incentivise the landowners (largely colleges). By comparison, land with residential development permission in nearby Kidlington is valued at £2.44 million per hectare. Only half the land would be developed, but the uplift in land values would be sufficient to fund 20% social housing at a suburban density of 30 dwellings per hectare, plus a tram line to the city centre. There would be plenty of room for self- and small builders. In this location a high-quality development would be viable without public subsidy.

a D Rudlin and N Falk: Uxcester Garden City. Second Stage Submission for the 2014 Wolfson Economics Prize. URBED, 2014. http://urbed.coop/sites/default/files/20140815%20URBED%20Wolfson%20Stage%202_low%20res3.pdf from £1 trillion in 1995 to £5 trillion today, despite a improve the quality of life for existing residents by relatively low level of investment in infrastructure reducing the need to drive to work. compared with other European countries. Land is The most viable way of funding the kinds of housing therefore fundamental to any attempt to create a that we need on the scale that is required is to fairer society, and values need to be brought down extend the places where people most want to live without triggering a national economic collapse. and work through ‘sustainable urban extensions’.45 Despite the importance of land to the economy, Unfortunately, locations on the edge of towns and property taxes account for a surprisingly low cities are often in marginal constituencies, bordered proportion of government revenue – 11% of the by tight Green Belts, requiring political courage to total, according to a study carried out by the Centre take action. This situation may have been helped to for Cities.43 Hence there is more potential to make a degree by the 2017 Housing White Paper,46 which the tax system both fairer and more productive suggests some experimentation on brownfield through changing property taxation than through sites, such as airfields, if there is no other source of taxes on labour (basically income tax) or on land for housing. consumption (basically VAT). Despite the requirement for brownfield registers, local authorities generally fail to identify the best The Garden City model land for development, which is land that is poorly Changes to land valuation will undoubtedly incur under-utilised but accessible without having to opposition from those who do well under the present depend on a private car. Instead, most schemes are taxation system. However, research undertaken for put forward by developers on sites that are isolated the 2014 Wolfson Economics Prize found that Garden from railway stations and totally car dependent, as Cities have more appeal than new towns or housing highlighted by the 2018 Transport for New Homes estates. URBED’s winning entry44 showed how to report.47 build new Garden Cities that were ‘visionary, viable Housing expert Pete Redman showed in his and popular’. Under the terms of the competition, calculations for URBED’s 2014 Wolfson Economics they had to be privately funded without grant and Prize entry that the uplift in land values resulting large enough to cater for changing requirements as from building on green fields on the edge of a people get older. thriving city such as Oxford was enough to fund The URBED entry used the example of an imaginary better infrastructure for all, including a new tram city called Uxcester (see Box 3), illustrated with line.48 There, the main local concerns of flooding plans of how Oxford could double its population and congestion could be addressed by building without sprawling into the countryside. This won enough housing in the right places, and tapping into local support from Oxford Civic Society as it would what Ebenezer Howard memorably named the help to reduce carbon dioxide emissions and ‘unearned increment’ of land values.

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 13 The UK cannot build the houses it needs without is also generally trusted by government to get making available both land and long-term finance for things done. infrastructure. If we are to avoid relying on national The stories of the western expansion of London taxation, we need to pay less for the land. We also in the 1930s, post-war Comprehensive Development have to concentrate development where it can Areas and developments in Docklands in the 1980s make full use of existing or planned infrastructure, bring out the crucial importance of mobilising land. rather than adding to congestion. Uxcester offers a Land has to be assembled and serviced (and, in the replicable model. case of some former industrial land, decontaminated) before it can be developed. Unless there is clear, Learning from the past long-term leadership, sites remain stagnant, as the The development of housing and infrastructure used holding costs are low while, as in a gold mine, the to be joined up. In the period between the two values are expected to rise for ever. As long as the World Wars, a time of not only suburban expansion developer can ride out recurrent property collapses but also mass electrification, the UK built more (the cycle is every decade or so), the long-term homes than at any other period. The best known investor cannot lose. example is Metroland in North West London, where A series of eight case studies of major housing the promoters of the Metropolitan Railway extension schemes for the Housing Forum’s Building Homes from Baker Street out to Uxbridge and Amersham for the Future programme50 established that land bought land on which to build houses. A similar supply is critical for housing developers: process, but with greater environmental costs as a ‘The biggest challenge of all is to address the result of exploiting the semi-detached house with a issue of land supply and its cost. At present garage, helped much of Britain to build its way out we rely on ever increasing land prices to fund of recession in the 1930s. Thus home-ownership infrastructure and affordable housing. There rose from 10% of the housing stock in 1914 to 38% are other options which the report highlights in 1938. At the same time ‘construction costs fell including the German policy for mobilising dramatically. A three-bedroom semi-detached house unused land and the capacity to freeze the cost £800 to build in 1920 but less than £300 in the prices in specified development zones.’ 1930s.’ 49 During the inter-war period, building societies As capital resources are limited, the basic challenge thrived, and their assets grew ten-fold. Plots of land for development finance is to devise a fairer way of were opened up for small builders off the new enabling cities to thrive without arousing so much arterial roads or railway lines in London, as along opposition as to make it politically impossible. the Great West Road, for example, where modern Funding needs to be on terms which make long-term factories provided local jobs within cycling distance. investment in related infrastructure viable, and which A new semi in West London cost as little as £400 in help to improve social balance and environmental 1935, which was the same as the cost of a Riley sustainability. Finance also has to meet concerns of open-top tourer – but then Riley was building only accountability and the avoidance of corruption. And, 3,000 cars a year, and only the privileged could with regular elections, government wants to keep afford one. the ‘burden of taxation’ as low as possible. It was only after the Second World War that motor Some kind of development agency is needed manufacturers in the UK discovered the secrets because most local authorities find it hard to reach of mass production, and housebuilders lost the agreement internally, let alone with their neighbours secret of building affordable homes, as they made or major landowners, or to provide the certainty that most money from land acquisition rather than private investors look for. Continuity is also essential construction. to avoid schemes stalling due to political swings or Another lesson is offered by how government property cycles. helped to reshape East London in the 1980s. The With increased uncertainties resulting from Brexit, vital key to developing or unlocking London Docklands something more radical will be needed to meet our was the taking over of the land from its previous national objectives over the next few decades – but owners, the Port of London Authority and the British something that is as pragmatic and British as the Gas Corporation. Neither would have ever invested semi-detached house or the payment of ground in the Docklands Light Railway, which was crucial to rents. This could be the Development Corporation, opening the area up for development, nor would a mechanism long promoted by the TCPA. they have had the vision to see the potential for an URBED’s research into land assembly for the extension of the City at Canary Wharf (an unexpected Greater London Authority51 discovered that many of result of designating the area as an Enterprise the practices we admire in continental cities are Zone). The institutional innovation, which may be ones that we used to apply in the UK before local coming back into favour, was the Development government was shrunk and funding centralised. Corporation, which has land acquisition powers and We need to rediscover them if we are ever to

14 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values Profit, risk and finance Build costs and fees

Infrastructure, affordable housing contribution, CIL Sales value

350,000

300,000

250,000

200,000

150,000

100,000

50,000

Costs and sales value per market dwelling, per market Costs and sales value £ 0 Urban extension New settlement Urban infill sites Regeneration

Fig. 5 Research has suggested that individual land value is positive for urban extensions and infill sites, which should not require government subsidy Source: Pete Redman, Housing Futures Ltd secure inclusive growth. To win enough support, the 3 changes we make need not only to offer a means of Funding local infrastructure funding the local infrastructure needed for new housing or to tackle congestion, but also to narrow inequalities.52 By referring to ‘sharing’ rather than This Section addresses the problem of how to fund ‘capturing’ the uplift in land values, some of the the local infrastructure needed to build new homes opposition could be defused. at scale, such as new roads or schools. It focuses on what Jonathan Manns, in an article on large- Conclusion scale development,53 defines as ‘strategic housing’, If we are to rebalance the UK and create a fairer i.e. housing on a scale that requires new infrastructure. and more sustainable society, we have to get Studies in both Cambridgeshire and Milton control of land values again. The country’s ambition Keynes revealed that the expected ‘tariff’ or for home-ownership, including investing in the buy- Community Infrastructure Levy (CIL) would only to-let market, has partly been caused by a lack of bring in a fifth of the cost,54 a figure confirmed in a other safe and inflation-proofed investment options. review for the government by Liz Peace, formerly Land values have become grossly unequal and are Director of the British Property Federation.55 Less losing their role as an incentive for development. than half of local authorities make use of that Banks and building societies have become remote power. The chart in Fig. 5 suggests that funding a from the areas they once served, and have funded new settlement is unlikely to be viable without an enormous bubble. We need to learn from the government subsidy – which is why it is important experience of the New Town Development to make the most of existing infrastructure. Corporations, as the TCPA has long argued. We need to stop cities from sprawling and the The cost of capital amount of time spent in commuting needs to be Development is only viable when the returns in cut. A resurgence of localism aimed at building up terms of sales value cover the costs and risks. The the ‘common wealth’ – for example through local build costs form only a small part of the equation. councils setting up development companies – Resourcing the growth of our towns and cities should also provide better outlets for saving and therefore depends on finding better ways of paying enable people to live well when they retire. But this for land assembly and local infrastructure such as requires changes in the way that we plan and fund transport and schools, which is the key to tackling local infrastructure, such as for transport and spatial inequalities. Currently projects that go ahead education, which forms the subject of the next depend either on being simple enough to attract Section. private funding or on being high profile enough to

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 15 Box 4 Transit-oriented development in fast-growing French cities

A tram in the centre of Montpellier

Montpellier, an old university town, is one of the fastest-growing cities in France. Strategic planning has been promoted by growth-oriented mayors, who have convinced surrounding areas to support them. Land is assembled through ZACs (Zones d’aménagement concerté), where local authorities have the power to acquire land and fund infrastructure. The state investment bank (Caisse des Dépôts) supports investment in social housing. A tax on the payroll of employers of over ten people (versement transport) helps to fund the extensive tram system, which covers its running costs from the fare box. Public transport forms the spine of new developments, including some of France’s leading business parks or ‘technopoles’, enabling the historic centre of Montpellier to be largely car free. Other good examples of this approach include the redevelopment of land over the railways that run into Gare d’Austerlitz in Paris, or development around the new orbital rail line at ZAC Claude Bernard in a regeneration area in St Denis, Paris. Subsidiary companies owned by the local authority or some other form of partnership provide the necessary expertise and continuity over many years. win government support. As local authorities in the taxation system inevitable, if only to provide a better UK lack the powers to levy taxes, it is hard to take way of filling the funding gaps. This has long been the wider public benefits into account, and good suggested by think-tanks such as the Policy projects often lose out. So, for example, HS2 or Exchange and management consultants such as the Cambridge to Oxford rail line get government McKinsey & Company.56 It could also appeal to support while ‘HS3’/’Northern Powerhouse Rail’ to politicians from all parties if plans for new connect up Northern towns and cities has been left infrastructure were put forward to revive the behind. economy and tackle spatial inequalities. This might The urgency of finding solutions to the UK’s form part of the ‘Green New Deal’ recommended economic role in a world after Brexit, combined by Ian Wray in his powerful set of case studies on with the pressures on our ageing and inadequate how the US government has been behind many of infrastructure, make a radical review of our property the country’s greatest achievements, from dams,

16 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values Table 1 Local variation in the potential for sharing land value uplift Stoke-on Trent Peterborough Reading Sutton

Average open market value, £ 160,000 230,000 300,000 410,000 Density, dwellings per hectare 30 40 60 120 Affordable housing, % 10 20 25 30

Market sales value, per hectare 4,200,000 7,300,000 13,400,000 34,500,000 Less: Land acquisition and preparation, £ per hectare 500,000 700,000 1,700,000 4,200,000 All-in development cost, £ per hectare 3,700,000 5,700,000 10,000,000 25,400,000

Balance for uplift sharing, £ per hectare – 900,000 1,700,000 4,900,000 railways and interstate roads to building up the IT decline, such as Stoke-on-Trent, and, at the other, industry.57 growth areas with access to a range of well-paying With a funding gap even on maintaining our energy jobs, such as Sutton in London. This local variation and transport systems estimated by the Policy affects the viability of funding affordable housing Exchange at some £500 billion,58 user charges end through private sales. Hence, while some uplift may up being increased, as happens every year with rail well need to be invested in the locality, if only to fares. These hit the poorest hardest. With large secure political support, another mechanism will be deficits, stagnant Treasury receipts and rising needed to overcome regional disparities. demands for public spending, something has to give. Higher taxation on personal incomes can readily be Restoring local autonomy avoided by clever accountants, while taxes on The centralisation of finance in the UK has come businesses will arouse concerns over employment. in for a lot of criticism, as it reduces the capacity Hence the obvious way to fund capital investment is of local authorities to steer their economies as from a charge on the land or property values which continental cities do. It also offends the very basis will benefit most from infrastructure investment. of local democracy. Council tax, the term used for A vital distinction needs to be drawn between domestic rates, is the main tax on domestic property financing investment in infrastructure (which may in the UK. Rates functioned quite well until around last for centuries and pays off over the long term) 1970, but later were used to restrict local autonomy, and funding current needs, such as paying for and most recently to implement ‘austerity’. They personal social services, where the benefits are more became a political football, rather than a means of transitory but also more politically pressing. Business sharing responsibility for maintaining environmental accounting distinguishes between capital and standards and improving society. This would have revenue, and the Treasury needs to do the same, been quite impossible in most of the rest of Europe, i.e. reassess the way we pay and account for capital where the principle of ‘subsidiarity’ prevails, and of all kinds (economic, social and environmental or central government has to respect local authorities. natural capital) in order to get better overall results. In his book on Victorian cities,59 the former Labour The political case is that once a higher proportion of MP Tristan Hunt brings out the importance of the the cost of infrastructure could be raised from the great Victorian council leaders such as Joseph areas with highest property values, then funds Chamberlain in Birmingham. He quotes the Fabian would be released for projects elsewhere with Sidney Webb, who talked of ‘municipal patriotism’ lower financial returns but greater benefits. Visitors and the ‘free cities’ of Italy as an inspiration for to European cities marvel at how well car-free city London. In his epilogue Tristan Hunt bemoans the centres function by being connected by light rail to ‘strangulation of local government’. Local government new suburbs and jobs on the edge. That is because expenditure rose from 32% of total government they join up development with transport at a sub- expenditure in 1870 to 51% by 1905, but then fell to regional level, and have local sources of taxation. 28% in 1979 and 24% in 1998. By 2001, after the In much of the UK house prices cannot cover more setting of business rates had been centralised in the than the costs of construction, let alone produce a early 1980s by Mrs Thatcher’s government, only a surplus that could be used to fund social housing or quarter of local expenditure was raised from local new infrastructure. Using figures produced by Peter taxation, and the UK became – and remains – one Redman at Housing Futures Ltd, Table 1 shows of the most centralised states in the world. the contrast between, at one end of the scale, a In a subsequent article for the Observer in 2016 regeneration area which has suffered from industrial Hunt drew inspiration from the USA, arguing that

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 17 cities have the means to ‘make Britain great interests and an overcrowded national agenda, it again’.60 He pointed out that the 388 metropolitan will be hard to get the time to even think about the areas in the USA generate 91% of GDP, and that issues, let alone try out solutions. many, such as Chicago or Portland, Oregon, are in Any change to the way that public services are forefront of efforts to improve the infrastructure paid for inevitably promotes dissent. Furthermore, through ‘transit-based regeneration schemes’ that the British system is so complex and there are so tackle social exclusion and poverty. These are many aspects to reform that most politicians keep typically funded through bond issues that have to be well away from the topic, as in the wake of the approved at election times, which provide investors Lyons reviews of local government finance and then with an inflation-proof asset for a defined period of housing for the last Labour government. But a head years, underwritten through local development of steam is building up as the different objectives plans.61 Even ‘free market’ USA allows much more of creating more effective local economies, tackling local autonomy than we do in the UK. inter-generational inequalities, building more and Rates are sometimes seen as a modern imposition better housing and tackling the infrastructure deficit but they date back to well before Elizabethan times, combine. being the means whereby property-owners funded We can also now build on a wealth of expert collective improvements, for example to highways studies into different aspects of reform, as well as or dock wharves. They have also become a means interest within leading professional bodies. These of equalising expenditure between regions, so that generally conclude in favour of shifting more taxation the highest rates, for example from the London onto property (which is relatively easy to collect), Boroughs of Camden and Westminster, could be and reducing the burden on income or transactions shared around. In its excellent studies of what leads (which interferes with markets).64 Economists favour to success,62 the OECD drew a clear correlation taxing ‘bads, not goods’ so that scarce resources between effective governance and the means to are used less wastefully. However, it can be argued raise investment finance. Unfortunately, despite that the UK is already the most highly taxed country attempts to provide rewards to councils that enable in terms of property tax (according to OECD figures), the development of new homes, council tax acts as largely due to stamp duty and inheritance tax, and a disincentive to build homes as the proceeds are previous attempts to reform the system have failed too low to cover the costs, and have been capped dismally, while planning obligations and other by central government. Some progress has been measures raised £6 billion in 2016/17.65 So are there made in restoring business rates to deserving local any better alternatives? authorities, but the system is still patronising and Most reviews have run into problems by trying to unfair. deal with the country as a whole, rather than with Many think-tanks, from the Policy Exchange to the the parts likely to undergo most change, and have IPPR, have argued that that the continuing poor hence failed to gain traction. They have also failed performance of the UK economy and its excessive to link raising money to how it is spent, or what is disparities are related to the centralised nature of called ‘hypothecation’. A brief review of the main national government and possibly our financial options put forward elsewhere is set out below. institutions. Certainly official figures show how far we lag behind the rest of Europe.63 Centralisation Uthwatt Committee Report makes government less responsive to local needs The Report of the Expert Committee on and unable to join up different forms of investment Compensation and Betterment, chaired by Mr – public and private. In the UK as a whole we pay Justice Uthwatt, was published in 1942 to help the less in tax, invest less, and get worse value from UK prepare for rebuilding at the end of the Second public investment. We also have some of the lowest World War. Land assembly was identified as a major rates of investment in infrastructure among the obstacle, with conflicts over compensation needing OECD group of countries, and pay more for energy to be resolved. The Committee was concerned by and public transport. The current rating bands for the problem of ‘floating land values’, which housing are notoriously unfair, as those in large produced unfair results in terms of who received homes in the richest boroughs can pay less than the ‘betterment’ from development. The solution the poorest residents elsewhere, and have little suggested was for local authorities to have incentive to keep their homes occupied. increased powers of compulsory purchase, within a planning system that specified what land could Charging property-owners be used for, and with a fixed proportion of the Although the subjects of local government finance increased value (75%) going to the state. Charges and project appraisal fail to get addressed in political on ‘betterment’ were traced back as far as 1427, so manifestos, they hold the key to changing direction there was nothing new in the concept of recovering on many more fronts than just housing and creating some of the value created through planning or a fairer society. But with so many entrenched improved infrastructure.

18 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values While some of Uthwatt’s proposals were that the UK is quite exceptional in the way that implemented by the post-war Labour government, taxes on housing are raised, with its many adverse they were reversed by the subsequent Conservative consequences. However, innovation is possible as government. Paradoxically, the report’s greatest impact the report’s summary of the recent experience of was on Germany, which adopted the proposals and the Republic of Ireland illustrates. The report provides has continued to operate within a system where useful charts on current high levels of inequality, local authorities take the lead.66 Richard Harwood exacerbated by an antiquated system of property QC points out that the Labour Party did not oppose taxation which charges the poor relatively more than the reversal of the ‘betterment’ provision, and it the rich. seems as if the country at some point lost the desire to create a fairer society that was so strong Rethinking the land market – across the political after both World Wars, relying instead on the flawed spectrum idea of ‘trickle down’. Tom Aubrey, who formerly worked in the City, has focused efforts in the Reforming the Land Market Mirrlees Review Final Report report 69 for the Centre for Progressive Policy on The expert and comprehensive review of forms of changing the land compensation principles to taxation led by Sir James Mirrlees for the Institute disallow the ‘hope value’ from a change in planning of Fiscal Studies paid special attention to the permission. He shows how much better countries challenges of improving the way that all forms of with fairer systems have done: for example, the property are taxed. With regard to both housing and Netherlands has built almost twice as many new business premises its more than 500-page final homes over a 40-year period, and the Germans and report 67 concluded succinctly that: the Danes over 20% more per capita, and their homes ‘● There is a strong case for introducing a land have been much larger as well. If compensation value tax. In the foreseeable future, this is likely principles in the UK were to return to the pre-1961 to mean focusing on finding ways to replace position, land value capture in the core cities such the economically damaging business rates as Leeds and Birmingham could be on a similar system with a land value tax. scale to that in the Cambridge-Milton Keynes- ● Council tax should be reformed to relate it more Oxford Arc. The benefits of such change would thus closely to actual property values – levied as a apply more widely than simply in the South East. proportion of up-to-date values with no cap and Aubrey has suggested in an earlier report 70 that no discount for unoccupied or single-occupancy simple changes in the 1961 Land Compensation properties. We have called this a housing Act, plus some modifications to business rates and services tax to reflect its underlying economic council tax, could ‘free up £172 billion over the next rationale as a tax on housing consumption to 20 years for increased capital expenditure on substitute for VAT. infrastructure’. ● Taxation of rented housing should be reformed Dieter Helm and the Policy Exchange have argued by offering landlords an allowance against the along similar lines, as has The Economist.71 The normal return to their investment (and by New Economics Foundation has proposed setting aligning capital gains tax rates with income tax up an ‘English Land Commission to identify policies rates …). In principle, it would also make sense needed for a more equitable distribution of land, to move towards a rate-of-return allowance and land values, and a fairer land system’.72 basis for the taxation of owner-occupied A report for the Labour Party edited by Guardian housing, but this may prove extremely difficult writer George Monbiot under the title Land for the in practice. Many 73 puts land at the centre of many of the UK’s ● Finally, stamp duty land tax should be abolished greatest challenges. It proposes changes to make and the revenue replaced by part of the housing information more transparent, stabilise land prices, services tax (for domestic property) and land encourage a shift in lending away from real estate, value tax (for business property).’ and introduce progressive property taxes, along with changes to the planning system that would Resolution Foundation report on property give local authorities much more power to lead taxation reform development. Many of the report’s proposals are The current priority of increasing housebuilding taken up in Section 5 of this report. rates has led to fresh interest in reforming council tax. The report of a review of options for property Overcoming vested interests tax reform conducted for the Intergenerational But taxing development is only part of the answer. Commission, set up by the Resolution Foundation, It is not enough to reduce the price paid for land, as provides a useful analysis of the impact of different most of the value is held by existing home-owners, options.68 Although it offers only a brief review of who benefit most when infrastructure is improved. international experience, it is clear from the report The simplest and fairest way to raise more funds

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 19 Box 5 Creative initiatives

Nottingham City Council has used a ‘Workplace Parking Levy’ to secure contributions from major employers towards building the city’s extensive tram system, which of course also helps to reduce the number of people driving into the city centre. The Greater London Authority used a supplement on the business rate to raise a third of the capital costs for Crossrail, with another third coming from central government, and the final third expected to come from the fare box (although central government is having to cover cost overruns). The Cambridgeshire and Peterborough Combined Authority is hoping to tap the potential of acquiring land around new stations on what it calls the Cambridgeshire Autonomous Metro, and has devised an ambitious spatial plan. from a charge on housing is to distinguish between local authorities need to be replicated much more the land and the building on it, as has been the widely (see Box 5). practice in Denmark and some parts of the USA, The common UK situation of ‘pauper’ councils such as Pittsburgh. This approach is also very much stands in marked contrast to that in major in line with traditional British practice. For many continental cities (see Box 6, for example), where centuries, since the Norman conquest of 1066, we powerful local authorities own much more land and in the UK have largely accepted a system whereby still run the main utilities and transport operators, a distinction is drawn between the freeholder and usually through subsidiary companies. For example, the leaseholder – the history is set out elsewhere.74 Scandinavian cities acquire land on the edge of Today’s Landlord and Tenant Act is intended to help settlements so that they can control development resolve disputes and provide the many small when the time comes, and can provide sites for housebuilders with sufficient motive to build a house self-builders. Their centres generally enjoy a much and look after it or rent it out to tenants, while the higher quality of public realm and much higher landowner has an interest in planning the estate so densities, and people from all social classes have that it holds its long-term value when the property been happy to live in apartments rented from reverts at the end of the lease. professional landlords.77 Similarly, the East German The landlord and tenant system largely underpinned city of Leipzig was able to recover from the loss the building of Victorian London, including places we of 90% of its manufacturing jobs after German value as exemplary, such as Hampstead Garden reunification through ownership of most of the Suburb.75 Landlords laid out the estate, including farming land around the city. This helped it to build provision for public facilities such as churches and the new road round the city to attract BMW’s new squares, and collected an annual ground rent from manufacturing plant and research centre, secured in those who occupied the properties that were built. competition with other countries. Former lignite In the ‘Great Estates’ in Central London landlords mines were transformed into a lake district. have taken a continuing interest in how the properties are let and managed, exemplified by the actions of Who should pay more? the Grosvenor Estate in improving the public realm A higher rate of investment has to be paid for, and in Mayfair and Belgravia, or the Howard de Walden many forms of capital do not produce a direct return Estate ensuring a good mix of shops in Marylebone to the investor, so the scope for conflict is immense. High Street.76 Something similar was practised in Furthermore, as Thomas Piketty has showed,78 capital some of the post-war New Towns, with, for example, disparities cannot be redressed through earnings the Milton Keynes Parks Trust taking over small from income alone. Since 1870 capital values have shops when the Development Corporation was increased by 6% a year while incomes have risen only wound up by the government, and applying their rents at 3% a year on average, so that wealth accumulation to looking after the town’s extensive open spaces. now depends much more on inheritance than on In the rest of the UK privatisation of services personal effort. Furthermore, having centralised once run by city authorities, such as energy and finance, nationalised the business rate and eliminated transport, and the sell-off of publicly owned land regional development agencies, the UK largely lacks have made it economically impossible to maintain the organisational mechanisms for changing direction. services without large subsidies from the national German success can be attributed to better local taxpayer. If we are to match continental cities in co-ordination or planning. The outstanding performance reducing carbon dioxide emissions, promoting of German engineering companies, for example, health and wellbeing, and narrowing spatial has been greatly helped by the combination of KfW disparities, creative initiatives by some enterprising (the national investment bank for reconstruction)

20 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values Box 6 Land value capture in Copenhagen

In building Ørestad, a high-density satellite new town at the edge of Copenhagen, a system of land value capture was used to fund Copenhagen’s first metro line In a system introduced as far back as 1916, house-owners in Copenhagen pay 2% of the value of their homes to the government. Land rent collected in this way ranged from 5% to 10% of GDP in the latter half of the 20th century. ‘Green Fingers’ of land rather than Green Belts focus development around transit corridors. In the latest corridor to be developed, land value uplift in the new city area of Ørestad funded the building of the city’s first metro line. The land had been previously owned by the military, and so reclamation costs were high. Publicly owned land has been transferred to a development agency. Sites with planning permission also pay property taxes (even though land value tax has been reduced in significance), which encourages development of under-used land.a Copenhagen had suffered from large-scale industrial decline but has recently been voted the best city to live in and visit in Europeb (and its property tax system has been copied by others such as Estonia).

a Learning from Copenhagen and Malmö. TEN Group Report. URBED, Sept. 2010. http://urbed.coop/sites/default/files/Learning%20from%20Copenhagen%20and%20Malmo.pdf b C Adams: ‘Copenhagen ranked most liveable city for Europeans’. The Independent, 13 Feb. 2019. www.independent.co.uk/travel/news-and-advice/copenhagen-denmark-liveable-cities-europeans-eca-international- a8777806.html

and the local Sparkassen or savings banks, which as the Fraunhofer Institutes do. Case studies of are better able to evaluate investment projects cities as different as Leipzig and Freiburg vividly than commercial banks.79 This in turn leads to highlight the German ‘secret’.80 As Bruce Katz greater growth and hence tax proceeds, especially has persuasively argued using examples such as when combined with the work of agencies for Pittsburgh and Copenhagen,81 successful cities transferring inventions from the university sector make the most of their under-used assets. This into products or services that can be commercialised, requires all the stakeholders – local authorities,

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 21 businesses and universities – to work in common do to create new sources of capital funding without purpose. imposing excessive taxes? How can we avoid our The UK has largely relied on private assessments predilection for delaying action through commissions of viability, which favour short-term returns. Although of inquiry, ‘cutting red tape lengthwise’, and ending the system set out in the NPPF in England has up having to pay more as costs escalate? The been improved by recent changes (in para. 57) precedents are not encouraging. Successive ‘blunders’, stipulating that land values should not drive viability such as the Private Finance Initiative or London but reflect planning conditions, the process still Transport modernisation, may have destroyed public largely responds to private initiatives. Furthermore, faith in government.85 Botched attempts at land value when public funds are invested to build local taxation, such as development land tax, introduced infrastructure, the UK uses a flawed system of by the short-lived Development Land Tax Act 1976, ranking projects in terms of the ratio of their have deterred modern politicians from even benefits to costs brought back to some present considering the subject 86 (at least until very recently). value (known as WebTAG by the Department for Nor has local government yet come up with Transport). This largely values cutting journey times, convincing solutions to funding infrastructure that and tends to favour roads over rail projects that would free it from central control, and instead would reduce environmental impacts. has had to rely on bidding for one government Studies of major transport projects such as programme after another. Local authorities have been Omega 3 82 have recommended instead that we reined in, and left without the means to underpin should design and assess strategic development substantial loans, even if they were trusted to projects in terms of multiple criteria, such as making promote major development projects. Despite it easier for people on lower incomes to access the occasional speech to the contrary, national jobs, or reducing the risk of flooding. This ‘science’ governments, aided by the all-powerful Treasury, of spatial planning would enable hard-pressed have centralised power to an unusual extent, planning inspectors, confused politicians and over- making it difficult for local authorities to respond stretched community groups to have a much better- to demographic and economic change and alter informed debate on the future shape of our towns course. This is in complete contrast to the rest of and cities. Europe or even the USA. Once it is recognised that vested interests and A range of reports and books from organisations bureaucratic inertia are important obstacles to creating such as the Centre for Cities and from ESRC research cities that work for all, politicians should collectively projects have argued for devolving power, if only to summon up the courage to overcome them. The tap private finance, and have drawn lessons from overwhelming objectives or criteria can succinctly European cities that have been more successful. be summed up in the ‘three Es’ of equity, environment Some of the innovations in land value taxation are and efficiency, i.e. the social, environmental and being applied in Commonwealth countries, such as economic impacts of development. in Canberra in Australia, where a change in the While every geographical area is different in policy system is said to have boosted development.87 terms, whatever the situation the creation of a more Land value capture – or land value sharing, as the inclusive or fairer society depends above all on UN calls it to sound less aggressive – would offer reducing housing inequalities, as this is the main part of the solution to the financing conundrum.88 form of wealth. Home-ownership has become International organisations recognise the importance unattainable for the majority of the young in all of investing in infrastructure to lift the world economy parts of the country.83 The National Infrastructure out of recession, and housebuilding offers a ready Commission, which is part of the Treasury, way of creating jobs in the ‘real economy’ as well recommends in its extensive first national as redistributing wealth.89 Hence it is probably the assessment that ‘Cities benefiting from major least risky way of stimulating investment and projects should make commitments on housing development, as political parties vie to build the delivery and provide at least 25 per cent of most new homes. funding.’ 84 Sadly it is far from clear how this is to In the UK the Treasury has long flirted with the idea be done without introducing new local sources of of sharing in the uplift from property development, taxation. for example through the Homes and Communities Agency making loans rather than grants to Sharing land value uplift housebuilders. Homes England is now doing just Land values and the reduction of risk are the this, but may have lost the capacity to consider the products of collective efforts, not individual enterprise. wider issues that affect regeneration and successful As they largely result from infrastructure and past new communities now that its role has been public investment they should not be appropriated focused on increasing housebuilding numbers. or ‘captured’ as if they were a personal possession. A major obstacle is finding an equitable way of Rather, they need to be shared. What can government sharing the uplift in land values. Other governments,

22 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values £

The government, on behalf of the general public, Increases in land value due to should keep this portion of the land value population growth and economic development

Public service providers should capture this Increases in land value due to portion of the increment to cover the costs of public investment in public infrastructure and local service provision infrastructure and changes in land use regulations

Private landowners should profit from this Increases in land value due to portion of the increment landowner’s investments

Land buyers (or lessees) pay sellers (lessors) to obtain the property rights of land Intrinsic land value

Fig. 6 Suggested allocation of land value uplift Source: H Suzuki et al.: Financing Transit-Oriented Development with Land Values. World Bank Group, Jan. 2015. www.worldbank.org/en/topic/urbandevelopment/publication/financing-transit-oriented-development-with-land-values such as the USA’s, tax property-owners rather than some of those in Eastern Europe, which were under occupiers because it is seen as fairer and less of a Soviet domination for so long and have relatively barrier to growth. The World Bank’s important book poor public transport systems. London, and much of international case studies90 brings out the merits of the rest of the South East, operates in a world of of participating in land-ownership around transport its own, because earnings are so much higher. nodes rather than relying on taxation, as in Singapore Once in power, national politicians are reluctant to and Hong Kong, for example. The book contains a devolve financial powers or tackle regional disparities helpful diagram that suggests how the value uplift on the grounds of exercising financial ‘prudence’ might be shared (see Fig. 6). Significantly, the or parliamentary democracy, despite the many development of the railway lands at King’s Cross in arguments for change that have been put forward London forms one of the World Bank case studies, repeatedly by experts such as Tony Travers.92 It as the UK government retained an interest through seems we in the UK prefer to argue over the its subsidiary company London & Continental symptoms rather than make the fundamental Railways. changes needed to tackle the roots of the problem, In another approach, Crossrail has been part- which requires re-empowering local authorities and funded by a levy on the business rate of employers giving them new sources of capital funding. along the line, subsequently supplemented by a The growing arguments for inclusive growth from wider levy. In contrast, house-owners who will use bodies such as the RSA suggest a degree of national the line to get to work do not have to pay anything, consensus. A report from the Resolution Foundation despite getting the benefits from higher property on inter-generational inequalities93 could be a ‘game values. changer’. The reform of property taxation could be However, the potential for land value capture widely supported once the UK starts to think about depends very much on how well the local economy rebalancing tax away from incomes and annual is doing. As the European Commission’s State of expenditure (as VAT is regressive) and on to wealth European Cities 2106 report91 clearly highlights, the instead (and hence property). In our concern to tackle major or ‘core’ British cities do even worse than poverty, and growing inequalities in income, we

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 23 have hitherto largely missed the roots of the problem, the infrastructure to support it, there are strong which lie in the way that wealth is distributed. arguments for levying charges on the uplift in land According to Piketty,94 some 70% of private values from housing development. The current wealth is now in the form of housing and in the methods of doing so, such as Section 106 payments underlying land, so it seems fair to raise a charge on or the Community Infrastructure Levy (CIL), do domestic housing to help pay for improvements to not raise enough to overcome the administrative the infrastructure on which house values are based. difficulties of joining up development and transport. Rising house prices and a lack of controls have But of course local authorities should still use attracted investment in housing from around the Section 106 agreements to compensate for any world, largely focused on Central London, which is adverse effects, and they should set standards, seen ‘as safe as houses’. While it is the high incomes including what must be provided before further of those who manage money or senior executives housing can be built or occupied. that get the most publicity, capital gains from owning But CIL could readily be replaced by a simple property are much less conspicuous. So efforts to formula that takes account of the value that promote equality need to start with access to development creates, and hence the uplift in land housing, as the rich currently get most of the benefits values, to create a more predictable system and one while the poor end up paying many of the costs. that avoids overloading overstretched infrastructure Report after report has concluded that unless you and professional capacity – such as the approach inherit property you have less and less chance of proposed by LSE Professor Paul Cheshire in a getting on the housing ladder. The Conservative submission to the UK2070 Commission and a government was frank enough to call the housing forthcoming report for the Centre for Cities,98 which market ‘broken’ in its 2017 Housing White Paper,95 he calls a ‘development land charge’. One way of while the Redfern Review 96 for the Labour Party doing this in high-value areas would be to take the concluded that its focus ‘is on improving the eventual sales value (which has to be registered position of first time buyers and those who remain with the Valuation Office Agency, or the Land in rented accommodation, rather than driving a Registry in the case of housing) and deduct the maximum, short-term home ownership rate’. valuation of the land in its previous use. An Experts agree that however much we may build allowance could be made for necessary expenditure (and there is widespread agreement that we need on remediation work such as decontamination. to double housing output) it will not bring prices There would then be two values to be considered: down to the level where they are widely affordable the value of the property, reflecting the cost of again. Hence we also need a much larger affordable building works, fees and necessary profits; and the rented sector, and much more proactive local value of the land, which should be the residual (i.e. authorities that can take social needs into account what is left over), not the starting point. Such an in mobilising land for development.97 approach has been used in Copenhagen as the While Garden City Principles are admirable basis for a property taxation system that has guidance for building new places, a few ‘garden successfully prevented land and buildings from settlements’ or support for first-time buyers will on standing idle, and also in Pittsburgh.99 their own make little difference. Instead, to tackle The owner deserves compensation or ‘equivalence’ social exclusion we need a different line of attack to for what is sacrificed, if only to provide an incentive ‘go to scale’ – for example cutting the cost of living to collaborate. But expectations about land values by making it easier for those on lower incomes to need to be deflated if housing is ever to become live closer to their work, in homes that are cheap to widely affordable again. This could be achieved through heat, and that are better suited to changing needs, a general principle that the maximum value of a as well as raising incomes and spending power. serviced housing plot on a strategic site in a growth Changes to property taxation would have real area should be 25% of the total value (which would economic benefits, too. With more funds raised be in line with both Dutch and German practice). It from landowners, the proceeds from VAT could be may be reasonable, as the Letwin Independent restructured – for example dropping VAT on property Review of Build Out suggests, to give the owner of refurbishment or on small traders in town centres. agricultural land some ten times the original value, but not a hundred times, which the current system Fairer shares for all allows. Clearly, the land value would be far greater The UK needs better ways of funding local in the South East than in the North owing to both infrastructure than having to rely on the ‘lottery’ of high sales prices and greater densities or plot ratios. government grants. The economic gains from The owner could either sell for existing-use value changes to property taxation could compensate plus a bonus, or invest that bonus in the scheme, the losers by unlocking the barriers to sustainable and benefit from the resulting returns in due course. growth and ‘smarter urbanisation’. As the value of As well as satisfying the owner, it seems only fair the land depends on both the use permitted and that the existing community where the site is

24 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values Re-use of the Philips factory in Eindhoven located should also be compensated for disturbance. of this kind in spatial plans and development This could be through contributing to whatever is frameworks, planning could start to shape land felt to be the local priority – in some areas it could values again, instead of being driven by them (see be relieving congestion through building a bypass, Box 7). or even a tram or rapid transit line in a city visited by tourists such as Oxford, while in others it might be Conclusion improving community facilities or providing a wider If we are to raise the funds needed to upgrade choice of housing to create a more balanced our infrastructure, the risks and costs of development community. Once areas have been identified for need to be reduced. Imaginative packaging of funds strategic development, it will be beneficial to set from different sources needs to be replicated out development frameworks covering uses, much more widely. Joining up development with densities, and other policies that will shape the infrastructure investment will produce places that value to be achieved. not only look better, but are also fairer and have less The anomalous situation of land in the Green Belts impact on natural resources and the environment around our cities that lies close to public transport because development is concentrated where the nodes also needs to be tackled. Sometimes the infrastructure can cope. In this way, development best locations for development are on the edge of should encounter less opposition. Funds need to be a city, to make the most of existing infrastructure, raised through a charge on the value of the land such as railway lines and other utilities. Any surplus rather than just the buildings on it, as a number of might then be used as an endowment to build up previous reports have recommended; and they need ‘common wealth’, for example through maintaining to be raised after development, not before it. and improving access to open space and promoting Too much of our national transport budget is biodiversity. Instead of simply nibbling at the Green devoted to grand projects at the expense of projects Belts around cities, some 5% could be used to that make life easier for pedestrians, cyclists, and fund new country parks and ‘greening’ measures, public transport users. By focusing a greater subject perhaps to a popular vote (and perhaps a proportion of capital spending on making urban two-thirds majority). By adopting some basic rules conurbations or metropolitan areas work better,

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 25 Box 7 Modelling alternative scenarios

Instead of thinking in terms of financial streams, discounted to present values, strategic spatial plans should consider cities as stocks of economic, social and environmental or natural capital. Capital can be augmented by appropriate investment, including in new housing, transport and other infrastructure. Cities, unlike human beings or businesses, tend to endure, and so need to use more appropriate time frames. In a world where most information is digitised and therefore can be mapped, a robust modelling approach would make full use of the huge potential to overlay or sieve different forms of analysis through GIS. This technique can take account of impacts on property values and tax yields, as well as identifying sites that have been overlooked and where land is poorly or under-used.a While it would not be right to produce a single value figure, mapping can help to show where action is needed to improve the ‘balance’ of the city region, and can provide evidence that politicians currently lack.

a N Falk: ‘Location, location and location: funding investment in local infrastructure’.Town & Country Planning, 2017, Vol. 86, May, 193-201 much greater benefits could be secured for less Eindhoven in the Netherlands or Leipzig in Eastern cost. Such a programme can also be used to create Germany illustrate.10 0 With the adoption of combined better jobs both in building and running local authorities and elected mayors, and the legislation transport. Information technology can be used to for new ‘Locally Led New Town Development evaluate different scenarios against multiple criteria Corporations’, the pre-conditions should be in place and to identify areas that have unused development in England and Wales for a revival of strategic spatial potential. The results of a more scientific or planning. This could be on similar lines to the Dutch evidence-based approach would be more intelligent VINEX policy for housing or the French model and smarter than leaving cities to sprawl, or relying outlined in a Town & Country Planning article on on long-drawn out public inquiries to resolve urban policy and new economic powerhouses in differences. Public support could be secured by August 2015.101 concentrating changes in taxation on the areas affected by strategic projects. Strategic growth areas Put simply, where strategic or major developments depend on infrastructure investment for their value, 4 there needs to be a spatial plan that shapes where Planning for smarter development does and does not take place in the ‘functional urban area’ over an appropriate timeframe urbanisation – say, 20-30 years. This should precede any ‘call for sites’, instead of simply reacting to proposals from To rebuild trust in the future, local authorities need private developers and landowners in one district or to aim for better outcomes through careful planning, another. As many researchers have shown,102 this not growth at any cost. In essence, ‘smarter is what happens in much of the rest of Europe, urbanisation’, which is akin to the US ‘smart growth’ notably Germany, the Netherlands, and France. It movement and transit-oriented development is not an infringement of human rights, but rather (TOD), requires joining up planning for transport a practical way of securing the optimal use of a with planning for development. Once planning at scarce resource – development land – in a situation a strategic level (i.e. for travel-to-work areas or where the market no longer works, and of functional urban areas) is combined with the allocating public resources where they are most capacity to raise funding for local infrastructure needed.103 investment so that cars no longer dominate ‘Smarter urbanisation’ would reduce urban sprawl movement, we could achieve a ‘fourth Industrial and pollution, cut the time it takes to get to work, Revolution’, one that goes beyond steam, electricity and produce much more attractive-looking and and IT to make the most of neighbourhoods and affordable developments.104 It is essentially about communities that are currently excluded from the making the most of existing infrastructure to create formal economy – a huge wasted resource. places that are more equitable, efficient and The benefits from ‘smarter urbanisation’ will be a environmentally beneficial. The case for transit- fairer and healthier society, as case studies of post- oriented development has been well set out with industrial cities as different as Rotterdam and supporting evidence from case studies, including

26 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values Box 8

Proactive strategic planning for new Dutch suburbs Han Lorzing

The Netherlands developed 95 new suburbs through its VINEX plan

The Dutch VINEX housing policy produced over a hundred new urban extensions in a country a quarter of the size of the UK. The country’s housing stock was increased by 7.6% in the ten years from 1996 to 2005. Local authorities were helped to come up with plans for expanding towns with over 100,000 population in locations accessible by public transport. Half the VINEX suburbs have over 1,500 units and one quarter have over 5,000 units, with some as large as 10,000 – such as Ijberg, which was developed on land reclaimed from the Ijmeer lake bordering Amsterdam. Land was developed around the edge of the Randstad, so what is called the ‘Green Heart’ that lies between the main cities could be conserved for agricultural uses.

King’s Cross and Northstowe in Cambridge.105 A report and to provide a degree of certainty for investors from the Republic of Ireland’s National Economic within a flexible framework for implementation. The and Social Council provides further European case starting point should be to map out all the known studies and a mass of research findings.106 constraints and opportunities, such as infrastructure The process is not as complex or arbitrary as capacity and travel patterns, as well as property some would suggest, and most stakeholders would values. Development frameworks should then be benefit from reduced uncertainty. Planning can used to help control land values in areas where respond to the signals given by land values or house uncertainties and potential values are high, making prices, as economist Kate Barker notably proposed.107 use of the power for local authorities to give Relatively straightforward calculations of the likely ‘permission In principle’.108 A spatial growth plan uplift in land values after deducting related was suggested originally in the Oxford Futures infrastructure costs can provide a good indication of report published in 2014 by the Oxford Civic where to build, and can be updated to reflect Society).109 A recent article in a Political Quarterly improvements or extensions of infrastructure over feature on suburbs suggested that the process of time. Of course political judgements will still be planning for smarter growth might involve the needed, but they should follow a thorough analysis following steps:110 of the options, using some form of multi-criteria ● Start with functional urban areas or travel-to-work analysis, as was undertaken, for example, in areas in places with high property values (and drawing up the Structure Plan for Cambridgeshire. therefore demand). The essential key to stronger planning lies in local ● Map the main travel routes, along with the pattern authorities focusing on co-ordinating development of settlements or housing market areas. and infrastructure capacity, rather than spending ● Rule out areas that are in floodplains or most of their time on regulation. Strategic plans designated as areas of natural beauty or SSSIs. need to look 20-30 or more years ahead to take ● Indicate potential improvements to road and rail account of likely changes in transport and technology, links, as suggested in URBED’s proposal for an

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 27 Oxford Metro, which would include a number of the risk involved in repaying the loan or the benefits new stations, such as on the freight line to Cowley. to be gained from the project. So a better solution for ● Work out the current property values in different the 21st century would be the use of growth bonds, locations (perhaps using council rateable values as as has been common practice in American cities, well as sales values for housing and commercial and which major housing associations are using on property). a large scale in the UK. Cambridge University had ● Evaluate the impact of different patterns of density little problem raising £350 million to build an and growth rates in terms of both private innovative mixed-use scheme on former farmland it investment and council tax revenue, as well as owns at Eddington in North West Cambridge. congestion or travel time over the next 30 years The beauty of bonds is that they are assessed by at five-yearly intervals. the financial market not just in terms of their potential ● Resolve the implications of changes to policy – to repay the investor, but also in terms of the capacity such as changes in Green Belt boundaries and or resilience of the borrower. There are said to be investment in local rail – on the prospects for ample private funds available for the right projects – investment. through pension funds that invest in inflation-proofed assets which can also be readily liquidated when Land assembly and growth bonds required, for example. Project promoters need not Many of the risks and conflicts in development only to be able to service and repay loans, but also can be removed by changing the compensation to have the resources to service the loans if the cash rules and powers of compulsory purchase so that flow from the project does not turn out as expected. communities find it easier to shape the ways in If local authorities are to raise more revenue which their towns and cities grow. It will be vital funding locally, they need to be able to vary tax to avoid speculation about further changes by rates, but at present their sources are all too limited specifying where development should and should and rates are capped. For example, the Conservative not be concentrated. Once suitable sites for growth Leader of Hampshire County Council in a letter to (or regeneration) have been selected, the task of the Observer on 1 January 2017 complained that the assembling the funding for infrastructure can council had its grant for 2010-17 cut by £159 million, properly begin (as long as prices are not ramped or 74%, and council tax is highly geared, requiring up). In simple situations where the infrastructure is very large increases to generate quite small amounts. already available, for example on publicly owned Subsequently Northamptonshire County Council, land next to a railway junction, it may be sufficient which had sought to prune its services, effectively to appoint an appropriate private development became bankrupt, despite having relatively wealthy consortium, or to work with a developer who residents. The government therefore needs to change owns a significant part of the overall site. the rating system by allowing local authorities However, where strategic development areas discretion to vary tax rates within limits (as is straddle local authority and other boundaries, the starting to happen, for example, with regard to care complexities will deter all but the most foolhardy costs and council tax). To secure a fairer distribution, developer. There it makes sense to set up a public- the appropriate area should be the county or city private partnership, a delivery vehicle such as North region and not the district, as has been used in Essex Garden Communities Ltd, or a joint venture, London towards meeting the costs of Crossrail as in the development of Barton Park on land through a surcharge on the business rate. owned by Oxford City Council. Where major public funding is required, as in the case of the transport Land value rating interchange at Old Oak Common in West London, Beyond freeing up local authorities, a much needed a Development Corporation with the power to review is required of the levels of tax bands, not just assemble land at close to existing-use value would to ensure that rates do not bear disproportionately offer the benefits of continuity and government on small town centre businesses or the relatively support (although it would need access to much poor, but also to make sure that those who benefit more finance to make a difference – the original Old most from development contribute their fair share. Oak Common budget was £12 million, while land This means changing from a system in which the assembly will cost over £200 million). tax falls almost entirely on the occupier, as in the Because infrastructure such as transport and UK, to one where it is primarily the landowner’s schools is needed up front in new strategic responsibility (as in the USA, for example). It also development, not at the end, long-term low-cost means local authorities playing a more proactive finance is essential if housing is to be affordable and role in ‘unlocking under-used assets’, with the neighbourhoods attractive. Many authorities are charge being collected after, not before development seeking to raise finance through the Public Works takes place.111 A useful precedent has been the Loan Board (founded as far back as 1793), which designation of Enterprise Zones to reduce the costs lacks the capacity to evaluate projects in terms of of development in areas with funding gaps.

28 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values With a system of land value rating in place, it is a the local council. Another source of space would be small step to start charging property-owners who above retail or business premises, possibly assisted have planning permission in areas of high value for by dropping VAT on refurbishment for housing. the ‘opportunity cost’ of holding land with permission Such schemes would not only cater for young idle. This is essentially what happens in Copenhagen, people getting their first home, but also for older and now in Canberra, Australia.112 Such a charge households wanting to move closer to shops and would have a huge impact on London, where services, many of whom could then release large research113 suggests that only half the sites with the houses in locations further from the centre for largest planning permissions are actually being conversion into homes for growing families. There developed. It could also benefit areas where house are encouraging signs that local authorities are prices are excessive. For example. it would help to setting up development companies to make use of unlock development in and around cities with under-valued land for housing, but they will soon untapped growth potential such as Oxford. need the help that a reform of the rating system But how is the inevitable resistance that would be would provide. Changes to the planning system for provoked to be countered? The land charge (perhaps areas of major change would also be required. called a ground rate) would be levied on property- owners in relation to the value of their holdings, Funding regeneration with exemptions for charities and smaller landlords. So far, the focus of this Section has been on It would supplement other sources, but would, over areas with positive development potential, but many time, reduce the demands on smaller property- of the greatest needs lie in declining urban areas occupiers, and make the whole property taxation and ‘shrinking’ cities. The current rates system was system much fairer. It might be collected at a super- intended to help equalise the differences between regional or national level, as in Denmark, to overcome rich and poor local authorities. In areas such as Stoke- the problem of spatial disparities and help equalise on-Trent and the Potteries that have long suffered wealth. In compensation, inheritance tax could be from industrial decline, not only is demand generally restructured, especially if reforms took in both insufficient to attract private investment, but the costs housing and commercial property, to make it easier of reclamation rule out any ability to repay loans, as to pass on small businesses when the owner dies, land values are effectively negative for the foreseeable and to allow residents with limited incomes to defer future, except possibly for a few infill projects. payments until death. To make the charges more palatable, an increased level of tax on property might enable VAT to be cut Box 9 (as VAT is earmarked for funding contributions to the The importance of the local EU and is essentially regressive). An example would environment be to levy the land charge on out-of-town retailers and business parks, which currently do not pay To support John Prescott’s Urban Summit in enough business rates to reflect the value of their 2002, URBED was commissioned to research extensive car parks, which derive most of their ways of collaboration between the government value from roads provided at public expense. They and 22 local authorities, and the findings were would pay more, but such an increase would be published as Towns and Cities: Partners in Urban seen as ‘only fair’ by the great majority of the Renaissance.a The research, which used filmed population (80%, according to one assessment114 ), MORI focus groups, found that ‘it was the little who would not have to pay more. things that mattered’.b Residents in disadvantaged A popular incentive for such a change would be areas were primarily concerned with the state of that rates (and rents) could then be dropped in town the streets. Innovative projects such as Incredible centres where (in a clear indication of ‘market failure’) Edible Todmordenc have since vividly demonstrated there are high levels of vacancy (or charity shops). that initiatives that rebuild pride of place enable Parking charges could also be reduced to make the communities to come together around a common changes more palatable. Currently small businesses cause. in declining town centres are expected to pay ever higher business rates (owing to the Treasury’s a Towns and Cities: Partners in Urban Renaissance. expectation that commercial rents can only go up). Project Report. URBED, for the Office of the Deputy At the same time, car parking charges are seen as the Prime Minister, Oct. 2002. http://urbed.coop/projects/ towns-and-cities-partners-urban-renaissance main source of discretionary revenue by many local b A video produced for the Office of the Deputy Prime authorities, acting as a further deterrent to visiting Minister in 2001 is available from Nicholas Falk, on town centres. Where there is a surplus of retail space, [email protected] the proceeds from the increased charge could be used c See the Incredible Edible Network website, at to build affordable housing a short walk from the town https://www.incredibleedible.org.uk centre, possibly using surplus car parks owned by

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 29 Box 10 Regeneration and the Northern Powerhouse Unserviced land value potential per plot blended £40,000 and above £25,000 to <£40,000 £15,000 to <£25,000 £5,000 to <£10,000 £5,000 or less Urban areas The ‘Charrette for the North’, held at the University of Liverpool in June 2016 and aimed at realising the vision for the Northern Powerhouse, drew together local stakeholders and experts from the Ruhr, the Île-de-France, and the New York region. The resulting report a argued that progress depends not just on a ‘new story about the future of the North … a Pennine Heart region like the Alps’ but also on ‘liveability, quality of place and place-making’, which requires ‘innovative institutional models for collaborative working’. It called for new financial mechanisms, such as turning Transport for the North into an economic development agency. The event considered a powerful spatial plan prepared by the RTPI and IPPR North, and demonstrated the possibilities for regional planning.

Fig. 7 Land value capture potential is greatest around a A Sustainable and Resilient Northern Powerhouse. London and other big cities Civic Design, Department of Geography and Source: Map prepared by Savills for Peter Freeman’s Planning, University of Liverpool, Nov. 2016. Wolfson Economics Essay submission in 2014, based on https://livrepository.liverpool.ac.uk/3004596/1/ market conditions in 2013 FF2%20Charrette%20for%20the%20North.pdf

Fig. 7, a map produced by Savills, shows the limits would not simply be ‘green wash’. People in post- of where land value could be captured. The best industrial towns voted for Brexit because they feel opportunities are on the edge of London and the neglected, and have to live with hollowed-out town South Coast, and in parts of Yorkshire. As long as centres as well as closed factories. the local infrastructure fund draws on the wider Too often, government-funded projects have area, for example that covered by a county council, expected quick economic returns from what is a degree of cross-subsidisation should be possible, inevitably a long-term process, and have under-valued and investment could be used to reduce spatial the impact that environmental projects can have on disparities. Indeed, if really wealthy areas such as people’s self-esteem, and indeed mental health. London and the Greater South East were responsible Projects to create large-scale country parks, such as for funding their own capital requirements, the Lee Valley Regional Park in Essex, Hertfordshire government finance could be redirected to the more and East London or the inspiring German Emscher needy areas, and those that have suffered most Park project that transformed former steel and coal from industrial decline or shrinking populations, towns in the Ruhrgebiet, show what can be where publicly funded regeneration is essential if achieved through a powerful vision and cross-border people are to regain hope. collaboration over a period of years.115 But the To secure political support, an early use of funds initiative needs to come from the bottom up, in this raised through a charge on development values case from a consortium of local authorities. Indeed, should be directed at environmental improvements one mayor’s vision of a new lake on the edge of aimed not just at changing the face or image of an Dortmund in place of the Phoenix steelworks is area, but also at making the people living there feel credited with changing the town’s fortunes, and has better – for example by creating ‘living streets’ and certainly given it a leisure quarter that was previously securing interim uses for vacant property. This lacking and has attracted wealthier residents. Such a

30 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values Map of the extent of the Emscher Park initiative in Germany (left), and (below) an outcome of one of the Emscher park projects – new housing beside a lake (Phoenix Lake) developed on the site of an old steel works in Dortmund

model could be used to regenerate the run-down Such a concept, which began to be used in part- area in West London near Heathrow along the Colne financing Crossrail, would enjoy even more support River Valley and enable homes to be built closer to if it were linked to a long overdue review of business sources of work as proposed in Re/Shaping London.116 rates and the whole inequitable property tax system. The important point is that instead of decisions on The application of land value or split-rate property investment projects being made by ranking them taxation might first be tested out in an area where nationally, using a somewhat spurious form of cost- rapid growth is expected as a result of public benefit analysis, choices would be made at a more expenditure on major transport projects, such as local level, where priorities between competing around Old Oak Common and Heathrow, or the projects, such as rail or road, can be assessed against 200 acres around Oxford railway station, which are multiple objectives and projects can be joined up to largely owned by Oxford City Council and the gain the full benefit from improved infrastructure. University of Oxford.118 The relevant area for raising funds should be the This proposal is closely linked to what the metropolitan or travel-to-work area, which would Congress for New Urbanism in the USA christened extend beyond the current city regions and combined ‘transit-oriented development’, with success stories authority areas. such as Portland, Oregon. In the UK, the Royal An idea of the financial impact of such a proposal Institution of Chartered Surveyors (RICS), as the comes from the calculation made by Tony Travers professional body most concerned with property and Stephen Glaister that: values, has long argued for changing the system in ‘A London-wide levy of, say, 5 per cent on the what it calls ‘transport development areas’.119 It has existing rate would produce almost £200 million undertaken work on valuing infrastructure such as per annum. This in turn would finance borrowings roads and bridges, and information on property of perhaps £4 billion.’ 117 values and ownership is fairly readily accessible

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 31 Box 11 Alternative models for housing development

Vienna has kept housing affordable through the city owning much of the land, and by using municipal developments to keep the costs of renting down. The ongoing development of the former airfield at Aspern Seestadt is exemplary, along with housing on former railway yards in the centre of the city. High-density blocks are developed for a mix of tenures, with good landscaping between them. Research into how Vienna manages social housing would be well worth undertaking. Developments in the Netherlands, such as Vathorst in Amersfoort, have ensured that around a third of new housing goes to the municipality. Some two-thirds are then sold at a discount to those on low incomes, with the provision that, when they are re-sold, the local authority or housing association receives a proportion of the uplift. Local authorities play a key role in pooling land and funding infrastructure. In Germany the building groups (Baugruppen) pioneered in Freiburg and Tübingen are being copied more widely in other cities, such as Berlin. Here, residents not only commission their housing together, but also take on responsibility for designing and managing communal areas. Such an approach is particularly beneficial when the risks are too great for conventional housing developers. Co-operatives are also used widely in Austrian cities such as Vienna, and in Swiss cities such as Zürich, where they account for 25% of housing units. In Denmark, in cities such as Copenhagen and Aarhus the idea of ‘co-housing’ is used to allow groups of people to own their individual homes but share common facilities. The concept is particularly attractive to both older people and families with young children, and accounts for housing for over 16% of Danish households. The system of taxing land values helps to recover the costs of improving infrastructure and encourages land to be put to the best use. In Scotland there is a serious attempt to apply the lessons from other countries through the Scottish Land Commission, so that land value uplift is shared in areas of major development, while Section 106 and other tariffs are used elsewhere to tax values arising from planning consent. without the need for an army of bureaucrats. So the 5 technology should already be in place to work up Implementing a step-change these ideas to the point where experiments with sharing the uplift in land values can be undertaken, starting with where major new settlements are How does government, beset by competing demands proposed. There are certainly plenty of promising and constraints, produce a framework that enables models to learn from (see Box 11). people to regain trust in collective action to create a better future for all? How can sufficient positive Conclusion energy be secured to unite a divided nation? This The benefits of building more housing, or of a Tomorrow Series Paper argues that the key lies, as better planning system, cannot be achieved without the founder of the TCPA, Ebenezer Howard, originally tackling the land issue and the related issue of saw, in reforming the way that development for joining up development and infrastructure. Changes housing is financed, planned and organised. However, to the planning system need to deal differently with care must be taken to avoid falling into the traps areas according to the levels of demand, and hence into which previous reform attempts, such as the development economics should guide investment to Community Land Act, fell.120 The recommendations where it will create the greatest value. The beauty that follow are based on four basic principles: of such an approach is that most of the country will ● Adopt a system that is straightforward and be unaffected, while areas that need to change will transparent, and hence minimises the time spent be properly resourced. in and the expense of arguments (and the failings Different approaches should therefore be introduced of previous attempts at land reform). in areas with high land values, where the economy is ● Focus on the relatively few areas where public strongest, and in areas in need of regeneration. But in investment is being made and major development both there is an overwhelming case for changing the is needed (and hence minimise the number of rules in areas that will benefit most from investment objections). in infrastructure such as new transit schemes. While ● Confine the new approach to bodies that are given the subject is complex and controversial, it is a democratic mandate, such as Development fundamental to achieving the national transformation Corporations set up by combined authorities, that all political parties say they want, and to county councils or elected mayors, supported by restoring local democracy in the process. approved spatial plans or development frameworks.

32 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values ● Apply the values of social justice or equitability, learn from the way that Dutch and German towns along with policies that enhance natural capital and cities have mobilised land for housing and and support good economic growth and the tackled industrial decline. Changes are needed to minimisation of waste so that best value is the way that areas for growth and regeneration are secured from development. identified, and then land for strategic development assembled, so that delivery can be speeded up. The recommendations have been grouped under headings of spatial planning, public finance, and Proposal 1: Spatial growth plans local government organisation. Most can be initiated Planners often complain they have lost the power without new legislation, and simply apply best to lead the process of urbanisation. Yet the tools practice on a much larger scale. Others justify exist – through, for example, combined authorities experimentation, along with legislation that frees up negotiating for increased public funds such as ‘City local government to play a more proactive role in Deals’, and through transport authorities looking at development. Foreign experience can help, but does the wider area through the lens of what kind of not offer a blueprint (and, indeed, other countries – places we want to leave as a legacy. Both could map the Netherlands, for example – also change their out social disparities and poorly performing property systems from time time). It will always be hard to in areas that are accessible by public transport using devise a new system that overcomes vested property values (or rateable values) before setting interests and inertia, and so a degree of cross-party out the action required to create a society that support will be vital. Hence the measures proposed works for all in designated growth or regeneration should be applied progressively, starting where areas. Such action could range from measures to there is a shared vision for increasing housing improve local infrastructure, such as improving public delivery or major commitments for public transport or insulating leaky homes, to initiatives investment are being made, such as the Cambridge- designed to raise capabilities and ambitions through Milton Keynes-Oxford Arc, or areas identified for education. Development frameworks rather than strategic development in spatial plans that have masterplans should then specify the amounts of been produced for city regions such as Greater development, types of land uses and acceptable Manchester, Sheffield, and Stoke-on-Trent.121 densities, along with the proportions of affordable or social housing, while leaving developers (and other Spatial planning for better returns professionals) with more freedom to innovate on A top priority must be to restore faith in good how the aims are achieved. governance – which means giving back to local Housing demand and prevailing property values authorities the capacity to influence and in some would affect the amount of affordable and social cases shape how their areas change and grow. housing to be provided, and the support available They should apply the wealth of existing research from government. Maps of ‘under-used and poorly into what creates good places and great streets.122 used land’ can highlight opportunities for development To restore hope that the future can be better than in transport corridors without adding to congestion the past, planning has to be reinvigorated, and and pollution. Adequately funded planned extensions tasked with building local capital – social and to ‘blue and green infrastructure’ might then be traded environmental, as well as economic. against reductions or relocations of areas of Green Hence the first step in restoring confidence and Belt near to stations or stops. Resistance could be building coalitions for change is to alter the way that overcome by taking careful bites of Green Belt land, spatial plans are devised and approved. In the UK, not nibbles. Areas of major new housing should unlike in most other Western European countries, also contribute to improving the local environment planning has become reactive, and as a result through a ‘green web’ or ‘Green New Deal’ in order investment is concentrated where it maximises to win more local support, and indeed in high-value existing wealth. Places of often greater public value, areas projects should be sought to show how such as high streets, historic buildings, or areas of climate change could be mitigated or reversed. natural beauty, have been neglected. Project plans fail to consider total returns as opposed to just Proposal 2: A better model for land assembly housing numbers: the government focus on To rebalance our economy as well as reshape our quantity has caused quality to suffer. towns and cities, investment has to be directed There is therefore a need for reform of the towards wealth creation and affordable housing, not strategic planning system that can complement the speculation. Housing values in much of the South NPPF and the Raynsford Review of Planning in of England and some of our metropolitan cities are England, conducted for the TCPA. Inspiration can be high enough to support redeveloping fringe areas drawn from French towns and cities such as Lille or that can make the most of existing infrastructure, Montpellier that have upgraded their historic centres such as under-used railway lines. By adopting the through integrated transit systems. We can also basic recommendations set out in URBED’s Capital

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 33 1813 1897

1950 2001

London expanded in stages along new transit lines

Gains research report for the Greater London As public funds are limited, some of the Authority,123 along with minor changes to the resources currently committed to expensive national Compensation Code, enough funds can be raised projects might be better reallocated to developing to deliver the vision of doubling housing output or integrated transport systems in metropolitan creating a low-energy/zero-carbon area, with a conurbations that suffer from congestion and resulting valuable boost to the real economy. The pollution. Observation of underperforming land around French system of Zones d’aménagement concerté country towns such as Oxford or metropolitan provides a good model for joining up transport and conurbations such as Birmingham or Stoke-on-Trent development,124 and could form the basis for what suggests that total returns from such a programme could be called ‘Land Assembly Zones’, where the would be greater and delivered faster, thus helping uplift in land values from development would be to build support for investment programmes. ploughed back into local infrastructure. Arguments are often made that being part of the This would require minor changes to the compulsory EU makes progress difficult, and the European purchase system to allow public bodies, such as Human Rights Act is also raised in defence of the Development Corporations, to acquire land before status quo.125 Yet in both Germany and the its value has been realised and there is an agreed Netherlands, where towns and cities have been plan. Compulsory Purchase Orders are essentially extensively regenerated, local authorities are able to a reserve power that can be used to incentivise charge the costs of improving local infrastructure land assembly where ownership is fragmented. against the uplift in value, and in Germany land Once the power is delegated to elected mayors, values are ‘frozen’ in such areas. Such a power the process can be accelerated and ‘free riders’ enables a much fairer division of the uplift in land eliminated. Having a body dedicated to the values over time than the current system, which is purpose such as the Labour Party’s proposed biased in favour of historic landowners. It would English Sovereign Land Trust would help to restore mean much less need for government subsidies to capacity and provide a much needed incentive private builders in the South East, thus releasing for collaboration. funds for where the total returns will be greater.

34 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values Public finance for infrastructure Proposal 4: Land value rating Getting Britain moving again cannot be done A further funding variant that needs consideration without greater access to long-term finance and is the tax or charge on those whose properties ‘patient’ capital. The investment required in building benefit from improved infrastructure. Tax reform many more affordable homes or in improving local always leads to organised opposition from those transport will play a large part in any ‘Green Deal’ or who expect to pay more, while those who will ‘local industrial strategy’, along with other measures benefit stay silent. But most economists agree that to build a fairer UK. It should pay for itself, but over taxes on property or real estate are a far better several decades, not five years. The UK would do source than any other, especially where the well to apply measures that have worked very well proceeds are used for public investment. As an in Germany and the Netherlands, but it would also example, Oxford University economist Sir Paul benefit from a development land charge, which will Collier favours using land value taxation,127 arguing require legislation, along with experiments in the that he sees ‘no reason why private landowners way that property is taxed. should profit from the increase in land value brought about by economic development and the Proposal 3: Development land charge infrastructure paid for by public funds’. Many others Instead of trying to get developers to contribute of all political persuasions share his views. before anything has been built, as we do with CIL To secure enough support for a step-change, in and Section 106 agreements, Dutch and German areas where major development is planned, and experience suggests that some form of charge on hence land values are likely to be boosted, local new housing when it is sold is a simpler means of authorities should be granted the powers to introduce raising finance for new housing.126 German councils a levy or charge on ground or land values, starting use powers for land-pooling and readjustment called with land that has been assembled for strategic Umlegung. The uplift in value is shared proportionately developments and passed through public ownership. among the original landowners after repaying the This would be similar to the situation in London’s municipality for any necessary infrastructure provision. ‘Great Estates’, where properties were developed on The municipality retains land equal to the increase leases from the freeholder, who received a ground in value, subject to a cap of 30% on greenfield land rent, with results that have stood the test of time. and 10% on inner city land. Dutch councils are similarly able to transfer property rights to a public Proposal 5: Property tax reform development agency, under what is known as the There is a case for going further. It is not fair to ‘Building Rights’ (or ‘First Choice’) model, and the require all the costs of providing affordable homes original owners subsequently receive serviced land or upgrading local infrastructure to be funded from back. new developments that are often occupied by In a submission to the UK2070 Commission, LSE young families with many demands on their limited economist Professor Paul Cheshire goes further and incomes. So changes could be made in the way that proposes a simplification of the whole complex domestic rates (the council tax) are set. Of course British system for taxing development through a higher bands are needed to overcome anomalies. charge on development values of 20%, similar to But in undertaking a reassessment (business rates VAT. He calculates the impact as follows: re-evaluation is due in 2021, but the idea could ‘MHCLG /DCLG Table 23 (formerly Table 503) apply to both business rates and council tax) shows the average price of new houses in 2014 in consideration should also be given to dividing the England was £285,000. If the government’s then tax on the building from the tax or charge on the target for annual house building of 200,000 p.a. land, in what is called a ‘split-rate system’. had been met, therefore, and a payment of 20% By using the charge on land to help fund local was levied on the final value of all new housing infrastructure, the costs will bear on those who developments then this might be expected to benefit most. Such a principle, which has worked raise a total of £11.4 billion a year (compared to well in Copenhagen in Denmark and in some LA budgeted expenditure for 2015/16 totalling American cities such as Pittsburgh, would also £95.4 billion of which housing, planning and help to encourage more intensive use of land. For development accounted for £2.89 billion).’ example, those living in under-occupied houses with large gardens would be encouraged to move to If the power to levy such a charge were restricted more manageable new housing where land is less to growth areas, as proposed above, the funds costly, such as the edges of many town centres. raised could cover much of the likely infrastructure The empty house might then be sub-divided, along investment. This should be raised at a more local with the garden, thus providing better homes for level, perhaps through counties and combined families with small children. Potentially controversial, authorities, as they are responsible for infrastructure this kind of change would probably require a Royal planning, with rates reflecting local circumstances. Commission to take account of all the arguments for

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 35 and against, following up the recommendations in the longer-term perspective or join up investment in Mirrlees Review for the Institute of Fiscal Studies.128 infrastructure and development, but it has also Business rates are also full of anomalies, with, for sapped local pride and identity. The pursuit of Brexit example, small shops in town centres paying relatively and ‘sovereignty’ in a global economy is just one more than large out-of-town shops that enjoy the perverse outcome. So, too, are the low levels of benefit of free parking. The IPPR has proposed co-operative enterprises to be found in both business introducing a land value tax for businesses, and the and housing compared with many European countries. charge should be on the property-owner, not the A better model is a community or regional occupier.129 At the same time, relief needs to be investment bank like the German Sparkassen that provided in town centres to encourage the re-use of could support small and medium-sized enterprises empty or under-occupied property. Tax incentives and co-operative forms of organisation. Similar similar to those available in Enterprise Zones could be approaches are used in most European countries. made available for providing housing in the locations The successful regeneration of the Basque region in that are most accessible by public transport and on Spain through the Mondragon co-operative is a foot, such as town centres with lots of empty shops. classic example, as towns such as San Sebastian and Bilbao visibly demonstrate.130 Another relevant Proposal 6: Growth bonds model is provided by the Industrial and Commercial As public funds will always be limited, with priority Finance Corporation (ICFC), which did good work given to meeting social needs, private finance will after its formation in 1945 until it was privatised in also be critical. Financial institutions such as pension 1994.131 This could be owned by its main customers, funds and insurance companies seek inflation-proofed so that it is not subject to political whims, and returns on investment, so there will be an appetite would be an important element in rebuilding local for backing development projects that offer good economies. Alternatively it could be promoted by long-term returns and are backed by property assets. reinvigorated local authorities and utilities, as As long as the cost of capital can be reduced by argued in the proposal for a Municipal Investment taking out many of the risks, then the results will be Corporation below. Institutions such as the both better and more affordable, and lower profit Nationwide Building Society or Legal & General, rates will be required. North American style local which have begun to back innovative building projects, authority ‘growth bonds’, as found in Portland, Oregon may help to provide the necessary expertise. or Toronto in Canada, should be underpinned by the prospective uplift in land values arising from Proposal 8: Municipal Investment Corporation development over a 20-30 year period. The partnership The final finance proposal is aimed at providing an formed by the giant insurance company Legal & incentive for local authorities to play a more proactive General and Oxford University could provide a role, as well as bringing about a fundamental shift replicable model. of power from the centre to communities, while While bond finance has become much more providing a mechanism for institutional private usual in recent years, used for example by housing investors to support real change. Inspired by the associations, the use of bonds to develop larger experience of countries such as the Netherlands areas will only be feasible where local authorities with BNG, France with Caisse des Dépôts, or can provide a level of security. This requires not only Germany with both KfW and the Sparkassen, a new more discretion over capital budgets, but also the organisation, the Municipal Investment Corporation, freedom to vary tax rates to ensure that they meet would take over the roles of old bodies such as the future obligations when raising private finance. Public Works Loan Board and redeploy the kind of Hence the use of growth bonds and changes to expertise formerly found in bodies such as the Audit the property tax system are inter-linked. Security Commission. It would act in conjunction with a new for investors can be achieved by enabling local source of public finance for land assembly, such as authorities to assemble land without having to pay the proposed English Sovereign Land Trust. It could ‘hope value’ through greater freedom to use also be part of reforms aimed at setting up regional compulsory purchase powers in advance of property finance agencies, possibly covering areas proposed values rising as a result of public investment. by the UK2070 Commission. It should secure endorsement from the Local Government Proposal 7: Community or co-operative Association, which has carried out some background investment banks research. Businesses complain about the difficulties in At present there is no agency with the necessary raising funds for investment in the UK, which put expertise and experience to evaluate projects that them at a disadvantage compared with their have multiple benefits and long-term impacts. The European counterparts. Small-business owners are current Public Works Loan Board may provide some often required to pledge their homes to raise bank of the expertise needed, which could ensure that loans. Not only does that make it harder to take a the new agency enjoys Treasury support. Initial

36 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values capital could come from pooling property assets ● Encourage collaboration between adjoining local owned by the public sector, as has been done in authorities and utilities by supporting sound and Hamburg and Copenhagen.132 Wider skills are agreed long-term local investment plans. required than property finance: more weight needs ● Avoid political swings, by building the capacity to to be given to projects that tackle social exclusion, think and act for the longer term. especially in regeneration areas where land values ● Ultimately raise levels of growth and wellbeing to are low. For example, instead of large subsidies those of comparable European cities. going into unviable housing or employment projects, greater value could come from improving connectivity or transforming confidence in the landscape. Local government organisation to rebuild The Municipal Investment Corporation would also capacity play a direct role in making better investment decisions The final set of proposed changes is aimed at and hence would work closely with the National rebuilding the capacity of communities to make Infrastructure Commission. Public investment planned changes happen. It means restoring the decisions would be greatly improved through some spirit that characterised the UK after the Second form of multi-criteria analysis that values the impact of World War, when people took pride in New Towns investments on equity and environmental indicators, and technological accomplishments and when and not just economic criteria. It will be vital to set up inequalities were narrowed. This sense of ‘pride of such a body so that it has cross-party support and is place’ is still visible in many parts of Europe that have not dismembered following a general election – or used investment in housing and local transport to privatised, as happened to the Industrial and upgrade their social, physical and economic capital.134 Commercial Finance Corporation, or latterly the While changes have taken place in many English Green Bank. local councils, such as combined authorities or A state investment bank or development agency elected mayors, with well publicised ideas for on the lines of the KfW, the BNG or the Caisse des ‘localism’ and Neighbourhood Plans, the transfer of Dépôts would help to fill the role currently played by power from central government towards the people the European Investment Bank. It needs to be able has lagged behind. The Brexit vote was less about to turn down well intentioned but misguided projects the faults of the EU than a response to alienation if it is to be trusted with substantial finance.133 Its and the loss of community identity.135 Changes are functions would not be imposed but it would be therefore needed not just to focus expertise and there to help city regions and combined authorities leadership where most needed, but also to engage that want to secure inclusive growth through greater local communities so that they do not feel left out investment in local infrastructure. Significantly, during or threatened by incomers, but have some control the great financial crash of 2007/08, although over their common futures. regional banks ran into problems in Spain and Irish developers had to be bailed out by central government, Proposal 9: Development Corporations the German financial system was largely unaffected, Where major development is forecast, measured and both BNG and KfW are regarded as very sound. by housebuilding or investment targets, development The Municipal Investment Corporation would agencies are required that outlive property cycles and take a longer-term perspective – for example giving changes in political power. So mayors or combined more weight to investments that reduce energy authorities should establish agencies with updated consumption and hence fuel bills (and carbon New Town Development Corporation powers to dioxide emissions) than a private investor would. assemble land, package long-term funding for local Specifically, its role would be to: infrastructure, and engage with local communities, ● De-risk complex projects – for example by lending as the TCPA has long advocated.136 The necessary money only where local authorities are committed expertise is scarce, and so needs to be used carefully to allocating appropriate sites and providing the to achieve infrastructure-led development in which necessary soft infrastructure, such as schools. development and transport are closely joined up. As ● Distinguish good projects from the bad ones, local authorities are increasingly involved in direct channelling more investment into locations where delivery of housing again, there is scope for extending the conditions for long-term economic growth are the roles of development companies and joint venture met. companies with private developers or housing ● Mobilise private sector investment by demonstrating associations to take on land that the council does commitment and providing guidance on where not own, through, for example, joint ventures with development is to take place (and on where it is transport operators or health authorities.137 not welcome). In neighbourhoods that have marked social ● Cross boundaries – for example by joining up disadvantages, a prime objective is likely to be public investments in local transport with related narrowing disparities through public funding allocated developments. to skills development and capacity building. Enterprise

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 37 Zones with tax incentives such as rate-free periods to build their own homes, as they are required to do can help smaller businesses to grow. Development in Scandinavia, for example, working with small and Corporations would have boards with elected local medium-sized enterprises and housing associations politicians, but also others who can help provide to provide the expertise individuals often lack. The leadership and make the most of local management Community Housing Fund set up in 2016 is a good expertise. Plenty of lessons can be drawn from the start, but local solutions require long-term support if existing New Towns and Garden Cities.138 Indeed, they are to make a difference and overcome the sense such a policy could win support from both the of alienation found in many parts of the UK. political left and the right, as a report from the Policy Where property values are relatively low, open Exchange on Garden Villages suggests: space and surplus public buildings can be used to ‘The proposed revision of the New Towns Act would rekindle ‘pride of place’ through their transfer to give local authorities (not central government) the environmental trusts, geared to providing local Act’s powers to create a new community to meet employment and training.140 Importantly, these local needs. This would enable them to capture trusts should also have access to long-term sources the majority of land value uplift to put in place the of revenue funding for environmental projects, for necessary physical and social infrastructure, as example through establishing town or parish council well as ensure the homes are more affordable. supplementary levies on council tax or enabling By empowering local authorities to establish new town or parish councils to use rentals from property communities to meet local housing need, it would endowment and broaden their roles. allow unwelcome and inappropriate development Projects to make the most of water and trees in around existing communities to be firmly ruled German cities, such as in the Emscher Park in the out by the local authority.’ 139 Ruhr or in the former East German city of Leipzig, provide good models for what can be done through Proposal 10: Community land or development municipal enterprise in areas where demand is trusts weak.141 There are also some good English examples, There is general agreement that local people need such as the work of Groundwork in the North West to be engaged early on in the development process. or projects such as Coin Street Community Builders Much of the opposition to change is because local in Southwark in London; but for the most part people feel left out of the decision-making about communities have tended to organise around what kind of new homes will be built near them. opposing rather than promoting projects. Fear that new housing will be ‘gentrified’ or that their Projects to rescue areas with empty homes children will be priced out are common reactions: should be expanded. A stake in the asset can both are expressions of a more fundamental sense ensure that local people benefit from changes of of exclusion from important decisions that affect use. Good models are available from both Bilbao quality of life. and Pittsburgh, where the local authority takes over The ‘community’ in ‘community land – or properties from companies that have failed and development – trusts’ covers a range of spatial levels, transfers them to a local trust – the re-use of an old from the whole of small villages and towns, to urban station by the Pittsburgh History & Landmarks neighbourhoods in larger towns and cities, now Foundation being an outstanding example. increasingly associated with Neighbourhood Plan In areas where demand is high, use can be made of areas. However, community land trusts represent a community land trust powers to hold on to freeholds, valuable return of interest in co-operative principles and therefore shape future letting policies and and in the protection of land in the public interest so practices, including keeping rents and purchase prices as to promote the social, economic and environmental affordable. Other sources of funds can be packaged wellbeing of communities. This notion of land that to support further innovation, for example through can only be held for the common good is embedded co-operative building groups. The power of social in the statutory definition of community land trusts media can be used to bring affinity groups together set out in Section 79 of the Housing and Regeneration and help raise funds for their projects. One interesting Act 2008. proposal that deserves further consideration is to If the UK is ever to match the levels of community- set up ‘common ground trusts’ to separate the owned or co-operative or housing found in European ownership of a home from the land on which it cities such as Zürich and Vienna or in Danish towns, stands.142 This would seem akin to the practice in people should not have to waste time as pioneers some co-operatives, and could provide a useful hedge but rather should be able to join organisations that against the ups and downs of the property market. are properly resourced for the long term. Hence local authority support will be vital, along with extra Proposal 11: Local infrastructure finance trusts resources to support voluntary initiatives to bring Developers sometimes complain that funds handed empty land and property back into use. Local over to local authorities under Section 106 agreements authorities need to provide suitable sites for people are not spent as intended, while local authorities

38 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values Vienna is developing Aspern Seestadt on the site of the old airport sometimes doubt whether the contributions go to authority or even a major landowner willing to take the right priorities. the lead. They would prepare budgets showing One approach to raising more finance is to the costs and returns from investment in local make sure that a levy on land values is seen as a infrastructure (i.e. not part of national systems). The charge, not a tax, and is used to fund improved charge would thus be seen not as a ‘stealth tax’, but infrastructure in the wider area on which the charge as a fairer means of securing growth that strengthens is levied, with community input into how the funds the whole town or city without adding to the public are used. It could be one of the tasks of Local sector deficit. The RSA’s work on mapping heritage Enterprise Partnerships (LEPs) to oversee how the assets could readily be reinforced by adding funds are used, motivated in part by the prospect information on property-ownership and values. This of securing government funding to match what is a measure that requires all-party support if is to is raised locally, but with proper community have lasting value, and could form part of a wider engagement. After all, in cities people now accept review of public finance, perhaps conducted paying charges for parking, or even having a permit through a Commission on Property Taxation. to keep a car on the street, and it could be a simple But higher charges on landowners will not be extension of that idea to reintroduce the idea of a acceptable unless the proceeds are clearly earmarked ground rent or rate on the value of the land they for a purpose that wins general support and helps occupy. to secure social inclusion, as in the case of London’s Where major investments in local infrastructure Congestion Charge, which funds improvements in are required, including for energy, transport and bus services and measures to make walking and social housing, funding could be pooled. But tax- cycling safer. It would be politic to establish a payers will need to be convinced that the funds suitable mechanism to package public and private raised will be used for purposes they support. finance for projects that have local priority, but The proceeds from an additional land charge or are not national responsibilities, such as the tax could be allocated to local infrastructure finance maintenance of national roads. trusts operating on a sub-regional or county/LEP- It should be easier to overcome resistance by wide basis, which would form part of the new starting with projects that have greatest priority. organisational machinery. These could be set up as Lessons can be drawn from the ‘development adjuncts to Development Corporations or by a local commissions’ used in North American cities such as

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 39 Portland, Oregon and Toronto in Canada, where tax having to visit the properties. Most of the information increment finance has become a fine art.143 It is on values required is now readily available online. possible that some of the LEPs, which are already Here, the results of the Oxfordshire County Council/ trusted by government to handle finance for Vale of White Horse District Council Oxfordshire infrastructure, could develop this role with support Land Value Tax study are very relevant.144 An from Homes England. experiment undertaken within the Vale of While Horse area found that land value taxation could be Overcoming objections implemented fairly readily as it was quite easy for a While there are strong arguments for providing surveyor to deduct the value of the buildings (based better sources of finance for ambitious local on expected replacement cost) from the value of authorities, there will be strong resistance to any the property (based on sales data). The results were real change. Progress in sharing the uplift in land significant, but predictable: values arising from development on a broad front ● If a standard rate was used, then residential depends on overcoming both the technical and properties would overall pay much more and political obstacles to land value capture, through commercial properties less; non-domestic proposals that can win enough support to overcome business rates were set at about 10% of the political objections and shifts of policy over time. Any value of the property, whereas council tax was proposal therefore has to overcome the limitations only about 0.5%. of existing sources of funding and provide a better ● The largest increases would be on the properties means of devising and evaluating projects. with most land (often the most valuable anyway) and, in the case of commercial properties, those Technical obstacles with large amounts of parking attached, such as Given the high levels of debate and research on out-of-town shopping centres. the land issue over the course of the last century, ● Overall, the number of ‘winners’ far outstripped something different is needed to change the game. the ‘losers’, and some of the losses could be A huge increase in both quality and quantity is compensated for by giving everyone an allowance required. The trump card could be an additional and permitting the increases to be deferred to the source of funding for local authorities that would point of sale (or death) when necessary. reduce their dependence on central government ● Many implementation options were found and secure better choices over the location of new possible, including the increase in property development and related infrastructure. Land value taxation being offset by reductions in other taxes, taxation is perfectly feasible, as the examples of such as income tax or VAT, or the abolition of high Pittsburgh and Copenhagen illustrate. Chartered rates of stamp duty or inheritance tax. surveyors can do the job quite easily, and values can later be updated to reflect inflation. Indeed, digital The main benefits were seen in terms of securing mapping and modern GIS techniques and aerial the optimal use of land, and in introducing a much photography make this quite easy to do without even fairer system, given the many criticisms of both

Pearl District United States Postal Service Site Tax Increment Finance Area Routes Metropolitan Area Express (MAX) Tram (Streetcar)

Portland, Oregon uses tax increment finance to help fund its new transit lines

40 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values council tax and the business rates. Significantly, economy – essentially energy renewables and local however, Conservative members of Oxfordshire transport – and the approach was taken up on a County Council abstained or voted against the large scale in countries such as Germany. The proposal for the study, which was undertaken by Liberal Democrats and the Green Party have both independent consultants and funded by a variety of long argued for investment to rebuild local economies, sources, including the Joseph Rowntree Foundation. through a National Infrastructure Plan and measures to promote environmental sustainability at local Political obstacles levels. At the other end of the political spectrum, in A bigger obstacle is bureaucratic inertia and the a well researched report the Policy Exchange, which resistance to any real change from those who supports the Conservative Party, proposed funding currently do well from the ‘property game’. However, the required £500 billion investment to modernise the political impetus to reform our system could our worn-out infrastructure by moving infrastructure come from the need to ‘reboot’ the UK economy in investment off the government’s balance sheet.146 the wake of Brexit. Since 2005 all of the political Dieter Helm and his co-authors at the Policy parties say they have been converted to devolution Exchange favoured creating an infrastructure bank, and localism, and to the need to find better ways of like the German KfW, along with measures to make funding infrastructure. Talk about land value capture it easier to issue bonds to pension and life funds. has rarely been more widespread on all political This thorough report concluded by saying: sides, but it remains a political football. Local ‘The economic crisis has raised fundamental leadership and a shared vision are therefore vital. questions about the ‘British economic model’, A fundamental difficulty is that the ‘tax take’ is based upon high consumption and high relatively low in the UK and is disproportionately borrowing. We argue that it would be better to concentrated in London and the big cities. A good focus on investment rather than consumption, idea of where the money could come from is creating assets to set against the debt. And provided in the Centre of Cities’ Mapping Britain’s amongst investment opportunities, infrastructure Public Finances report,145 which set out some has considerable merits, not least because it surprising findings. It found that taxes on land and increases productivity and competitiveness, as property raise only about a tenth of the government’s well as social inclusion.’ revenue (11%), with taxes on investment raising a further 10%. By contrast, VAT brings in 19% of As resources are unevenly distributed around the revenue, while half of government revenue comes country, and there has been a long record of under- from income tax and national insurance. Those who investment in some areas, such as the North, it own most pay least. Yet taxes on land or property seems reasonable to allocate a proportion of the can be hardest to evade. receipts from a charge on land values in the Greater The greatest sources of tax are the main South East to regional investment, or a ‘Sovereign metropolitan cities, since they are where most Wealth Fund’, which would enable the subsidy from people live and work. A few London boroughs such government that less wealthy areas have been as the City and Westminster contribute the ‘lion’s receiving to be reduced. Areas need to be large share’. But the highest rates of land and property enough to benefit from land value capture, and tax are in the outer local authorities. Oxfordshire there will be some places where the costs of and Cambridgeshire have had some of the lowest decontamination far outstrip any value that could government spends because they have smaller ever be created. But according to figures produced pension-age populations and benefit recipients, but in a report by Tom Aubrey for the Centre for they raise some of the highest amounts of national Progressive Policy,147 a useful contribution could be taxes. In practice, the differences between tax achieved in metropolitan cities such as Leeds and levels per worker are not all that significant across Manchester, provided the laws regarding the country compared with differences in public compensation and compulsory purchase were expenditure, which vary hugely, especially in terms changed. The report includes a very useful map of of infrastructure. This suggests that there is where the most potential lies. untapped potential to raise more taxes in the areas The urgency of restoring confidence as the costs with greatest established wealth and real economic of Brexit become clearer will justify radical changes growth prospects, if only to make them less such as these, including, paradoxically, using dependent on central government. approaches that more successful economies in Such a programme could draw support from Europe have been applying for decades. Indeed, across political divides as a practical response to a leaving the EU may encourage cities and city housing and global environmental crisis. Chairing regions to make the most of their assets, and to the emergency G20 meeting to tackle the 2007/08 create agencies that can heal the divides, bridge the financial crisis, the then Labour Prime Minister gaps, and replace organisations like the European Gordon Brown called for investment in the green Investment Bank.

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 41 The Labour Party’s Housing Green Paper proposed could help to avoid the common problem of costs an English Sovereign Land Trust as a mechanism for greatly exceeding the engineers’ original estimates). mobilising the necessary land.148 Such a mechanism It would help to overcome the distrust of both could grow out of an existing national agency such developers and local authorities through the quality as Homes England or even LCR (formerly London & and reputation of its board members. Continental Railways), which helped fund the high- By taking a different approach in areas where a speed rail line from London to the Channel Tunnel comprehensive and integrated approach is needed and is now involved in projects in Manchester and over several decades to avoid wasting public or elsewhere. Proposals for how such a body would natural resources, it should be possible to build up operate were published by the Smith Institute149 – the trust and public engagement that is needed for based on either the Dutch BNG model or the French development to be truly successful. It is vital to Caisse des Dépôts. Its role would be that of an ensure that all concerned can see some benefits to investment bank, to assess as well as help broker themselves. A useful set of policies on housing funding for local infrastructure projects such as delivery, based on discussions at the Highbury strategic housing developments.150 Once it is Group, would create a much fairer system, following possible to secure the issue of bonds against the changes in the way that plans are prepared at a city uplift in property values, as the Policy Exchange and region level.154 others favour, and tap local property-based taxes or land charges, real progress can be made on rebalancing the economy and tackling social exclusion. 6 The relatively buoyant areas of London and the Conclusion Greater South East could then fund more of their own infrastructure improvements out of the value released from development, which Ebenezer This Tomorrow Series Paper has shown how to Howard memorably called the ‘unearned increment’. share the uplift in land values by mobilising private The funds saved by cancelling or deferring projects as well as public investment in tackling spatial with relatively low returns and benefits and exceptional inequalities. The huge unfilled gaps in the provision costs could then be invested in regenerating the of affordable housing, or transport and energy under-resourced ‘third tier’ towns and cities in the infrastructure, along with the economic downturn rest of the country. that may follow Brexit, provide the rationale for long As the process of putting viable projects together overdue reforms in the way that land is valued and is complex and involves upfront costs, raising finance taxed. A reformed approach is justified not just as a might be overseen by the National Infrastructure means of reducing inter-generational inequities, and Commission. An even better option, if there was giving young people more of a stake in society, but sufficient local authority interest, would be to set up also as the most practical mechanism for boosting a Municipal Investment Corporation, on Dutch housing availability and restoring local democracy. lines.151 Although there is resistance to creating There are enough reports – including the House of institutions that are independent of government, Commons Housing, Communities and Local this would offer an opportunity for a group of local Government Committee’s Land Value Capture report authorities, possibly backed by some of the utilities, – to suggest that the time is ripe for some to collaborate in raising the funds needed for fundamental changes that can win all-party support. sustainable urban extensions and new settlements. So let us follow the examples of the best cities, and Large housing schemes would be developed start building fairer places in all senses of the term. complete with modern forms of infrastructure, such as combined heat and power systems, as in Scandinavian cities for example, or light rail Appendix 1 systems, as in French and German cities.152 Boosting local capacity to The public asset corporation model has been used to great effect in both Copenhagen and Hamburg, build affordable housing – and research for the RICS shows how the pooling existing avenues of land assets can provide a strong base for raising the capital needed to extend and upgrade cities.153 To ensure that funds are invested in appropriate Successive efforts to increase strategic development infrastructure, and not used for other public purposes, have tended to tinker with the problem, and create they could be held by an intermediary body in each scope for further argument and delay. The basic area, perhaps as a local infrastructure finance trust. problem has been the pressure placed on local Such as body could then ‘package’ funding from authorities to generate income rather than create different sources so that the necessary capital social or environmental value from land that they funds are in place before construction starts (which own. The modified requirement to generate ‘best

42 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values value’ is ambiguous, and local authorities have local politicians working together on a substantial lost much of the capacity to plan proactively. scale in the USA. The concept now has global Attempts to simplify conditions, for example with traction. Their initial popularity here is suffering regard to viability, tend to end up cutting red tape from local authorities now frequently wanting lengthwise as dealings in land in the UK are to use their own land to undertake housing excessively adversarial, with a bias in favour of the developments of their own, even though the established landowner. Here are some existing affordable homes produced are not protected from means of action: the Right to Buy or leasehold enfranchisement. ● Section 106 agreements: Local authorities can Similarly the provision of a register of land for specify conditions for giving planning permission. self-builders has not taken off as it should. Originally intended to ensure that no harm was ● Enterprise Zones: In areas with large amounts of done, this became the principal means of vacant land and little obvious demand, planning securing social housing when grants were cut restrictions may be relaxed. Development is back, and is often used in high-value areas to give encouraged by occupiers being relieved from local authorities the feeling that they have won a paying business rates, along with other tax ‘planning gain’. incentives for investment. Such a measure was ● Community Infrastructure Levy: In a watered key to the redevelopment of Canary Wharf in down version of what Kate Barker’s Review of London Docklands. Housing Supply recommended, local authorities can ask for a contribution towards the cost of This brief review of current powers suggests that related infrastructure such as roads and schools. local authorities need greater support if they are to In practice the calculations are complex; the play a more proactive role and package available payment is resisted because no income has yet funding in order to support private investment. been generated; it represents a small proportion Freeing up local authorities means taking away of the total costs; and it is only levied by a many of the restrictions. To avoid criticisms of minority of local authorities. A wider concept of a corruption and self-serving action, a transparent and strategic infrastructure tariff, perhaps levied as a trustworthy process or organisation is needed to roof tax, as in Milton Keynes, is also possible. assess complex projects and package funding. ● Housing Revenue Account: Government measures to limit local authority freedom are starting to be relaxed so that local authorities can use the income from sales or borrow against future References income from that housing they own. The removal of the cap on expenditure has led to many local 1 Land Value Capture. HC 766. Tenth Report of Session authorities setting up housing companies to 2017-19. Housing, Communities and Local Government develop affordable housing on land that they own. Committee. House of Commons, Sept. 2018. https://publications.parliament.uk/pa/cm201719/ ● Public Works Loan Board: This long-standing cmselect/cmcomloc/766/766.pdf organisation exists to provide loans to local 2 A Vision for Social Housing. Final Report of the authorities, often at lower rates than would be Shelter’s Commission on the Future of Social Housing. charged on the private market. The key Shelter, Jan. 2019. https://england.shelter.org.uk/__ consideration should be how to repay the loan, as data/assets/pdf_file/0005/1642613/Shelter_UK_-_A_ local authorities have very limited discretion on vision_for_social_housing_full_interactive_report.pdf what taxes or charges they can impose. This has 3 N Falk and J Rudlin: Learning from International caused many to rely on parking charges, which Examples of Affordable Housing. URBED Trust, for Shelter, Jul. 2018. https://england.shelter.org.uk/__data/ are a deterrent to using town centre shops. assets/pdf_file/0008/1641176/International_examples_of_ ● Locally-Led New Town Development affordable_housing_-_Shelter_URBED_Trust.pdf Corporations: One way of acquiring land at close 4 I Wray: No Little Plans: How Government Built to existing-use value is to set up a Development America’s Wealth and Infrastructure. Routledge, 2019 Corporation. But as the land for a New Town has 5 T Crook and C Whitehead: ‘Development value to be allocated in the Corporation’s development capture, principles and practice: why is it so difficult?’. plan, land values would almost undoubtedly Town Planning Review, 2019, Vol. 90 (4), 359-81 escalate. The need to test whether proposals rest 6 M Sandel: What Money Can’t Buy: The Moral Limits of on ‘sound foundations’ appears to have neutered Markets. Allen Lane, 2012 the potential of this important power. 7 J Rawls: A Theory of Justice. Belknap, 1971 ● Community land trusts: In order to provide a 8 P Collier: The Future of Capitalism: Facing the New Anxieties. HarperCollins, 2018 degree of permanence for social or affordable 9 Beyond Eco-Towns: Applying the Lessons from housing, a locally controlled trust can be set up that Europe. PRP URBED and Design for Homes, Oct. 2008. provides protections on affordability. Community http://urbed.coop/sites/default/files/Beyond land trusts have been used by communities and %20Ecotowns.pdf

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 43 10 D Edgerton: The Rise and Fall of the British Nation: A 26 Capital Gains: A Better Land Assembly Model for Twentieth Century History. Penguin, 2018 London. URBED with Dentons, Gerald Eve and 11 See, for example, reports by Kate Barker and Sir Housing Futures, for the Greater London Authority, Michael Lyons, as well as a host of think-tanks which Feb. 2018. http://urbed.coop/projects/capital-gains- are referenced throughout this paper, culminating in better-land-assembly-model-london the government’s Housing White Paper, Fixing Our 27 Fixing Our Broken Housing Market. Housing White Broken Housing Market (Cm 9352. Department for Paper. Cm 9352. Department for Communities and Communities and Local Government, Feb. 2017. Local Government, Feb. 2017. www.gov.uk/government/ www.gov.uk/government/collections/housing-white- collections/housing-white-paper; and National paper) Planning Policy Framework. CP48. Ministry of Housing, 12 J Ryan-Collins, T Lloyd and L Macfarlane: Rethinking Communities and Local Government, Feb. 2019. the Economics of Land and Housing. Zed Books, 2017 www.gov.uk/government/publications/national- 13 ‘The time may be right for land-value taxes’. The planning-policy-framework—2 Economist, 9 Aug. 2018. www.economist.com/briefing/ 28 Housing for the Many. Labour Party Green Paper. 2018/08/09/the-time-may-be-right-for-land-value-taxes Labour Party, Apr. 2019. http://labour.org.uk/wp-content/ 14 Housing for the Many. Labour Party Green Paper. uploads/2018/04/Housing-for-the-Many-final.pdf Labour Party, Apr. 2019. http://labour.org.uk/wp- 29 The State of European Cities 2016: Cities Leading the content/uploads/2018/04/Housing-for-the-Many- Way to a Better Future. European Commission and UN final.pdf Habitat, Dec. 2016. https://ec.europa.eu/regional_policy/ 15 G Monbiot (Ed.) et al.: Land for the Many: Changing en/policy/themes/urban-development/cities-report; the Way Our Fundamental Asset Is Used, Owned and and The Metropolitan Century: Understanding Governed. Labour Party, Jun. 2019. Urbanisation and its Consequences. OECD, 2015. http://labour.org.uk/wp-content/uploads/2019/06/ www.oecd.org/gov/the-metropolitan-century- 12081_19-Land-for-the-Many.pdf 9789264228733-en.htm 16 See, for example, E Glaeser: Triumph of the City: How 30 B Munday and N Falk:The ABC of Housing Growth and Our Greatest Invention Makes Us Richer, Smarter, Infrastructure. Housing Forum, Jan. 2014. Greener, Healthier and Happier. Penguin, 2011 www.housingforum.org.uk/resources/influencing/ 17 Land Value Capture. HC 766. Tenth Report of Session housing-forum-reports/the-abc-of-housing-growth-and- 2017-19. Housing, Communities and Local Government infrastructure---january-2014 Committee. House of Commons, Sept. 2018. 31 D Detter and S Foster: The Public Wealth of Cities: How https://publications.parliament.uk/pa/cm201719/ to Unlock Hidden Assets to Boost Growth and cmselect/cmcomloc/766/766.pdf Prosperity. Brookings Institution, 2017 18 ‘Increases in land value should be shared with local 32 W Hutton and A Adonis: Saving Britain: How We Must communities, say MPs’. Press Notice. Housing, Change to Prosper in Europe. Abacus, 2018 Communities and Local Government Committee. House of Commons, Sept. 2018. 33 N O’Brien: Green, Pleasant and Affordable. Onward, www.parliament.uk/business/committees/committees- Jun. 2018. www.ukonward.com/wp-content/uploads/ a-z/commons-select/housing-communities-and-local- 2018/06/220618-Green-Pleasant.-Affordable-Web- government-committee/news/land-value-capture- ready.pdf report-published-17-19/ 34 A Smith: The Theory of Moral Sentiments. 1759; see 19 C Cadell, N Falk and F King: Regeneration in European also A Smith: The Wealth of Nations. 1776 Cities: Making Connections. URBED for the Joseph 35 D Dorling: All that is Solid: How the Great Housing Rowntree Foundation, 2008. www.jrf.org.uk/file/37373/ Disaster Defines our Times, and What We Can Do download?token=5awcNc2B&filetype=full-report about It. Penguin, 2014 20 T Crook: Local Authority Land Acquisition in Germany 36 O Letwin: Independent Report of Build Out: Final and the Netherlands: Are There Lessons for Scotland? Report. Cm 9720. Ministry of Housing, Communities Land Lines Discussion Paper. Scottish Land Commission, and Local Government, Oct. 2018 Nov. 2018. https://landcommission.gov.scot/wp- www.gov.uk/government/publications/independent- content/uploads/2018/12/LANDLINES-Land-Value- review-of-build-out-final-report Capture-Tony-Crook-Nov-2018.pdf 37 D Bentley: The Land Question: Fixing the Dysfunction 21 T Piketty: Capital in the 21st Century. Harvard at the Root of the Housing Crisis. Civitas, Dec. 2017. University Press, 2014 www.civitas.org.uk/content/files/thelandquestion.pdf 22 H Bessis: Competing with the Continent: How UK 38 See, for example, P Cheshire: ‘Turning houses into Cities Compare with their European Counterparts. gold: the failure of British planning’. LSE British Centre for Cities, Sept. 2016. www.centreforcities.org/ Politics and Policy, May 2014. wp-content/uploads/2016/09/16-09-21-Competing-with- https://blogs.lse.ac.uk/politicsandpolicy/turning-houses- the-continent.pdf into-gold-the-failure-of-british-planning/ 23 Further details of many of the case studies mentioned in this Paper can be found at Nicholas Falk’s ‘Postcards 39 Land Value Estimates for Policy Appraisal 2017. Ministry from the Future’ blog pages, at of Housing, Communities and Local Government, https://postcardfromthefuture.wordpress.com May 2018. www.gov.uk/government/publications/land- value-estimates-for-policy-appraisal-2017 24 P Hall, with N Falk: Good Cities, Better Lives: How Europe Discovered the Lost Art of Urbanism. 40 M Adams: Land: A New Paradigm for a Thriving World. Routledge, 2014 North Atlantic Books, 2015 25 D Rudlin and S Parikh: Climax City: Masterplanning and 41 F Harrison and M Gaffney: Beyond Brexit: The the Complexity of Urban Growth. RIBA Publishing, 2019 Blueprint. Land Research Trust, 2016

44 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 42 G Monbiot (Ed.) et al.: Land for the Many: Changing Bridging Global Infrastructure Gaps. McKinsey Global the Way Our Fundamental Asset Is Used, Owned and Institute, Jun. 2016. www.mckinsey.com/industries/ Governed. Labour Party, Jun. 2019. capital-projects-and-infrastructure/our-insights/ http://labour.org.uk/wp-content/uploads/2019/06/12081_ bridging-global-infrastructure-gaps 19-Land-for-the-Many.pdf 57 I Wray: No Little Plans: How Government Built 43 L McGough and P Swinney: Mapping Britain’s Public America’s Wealth and Infrastructure. Routledge, 2019 Finances: Where Is Tax Raised and Where Is it Spent? 58 D Helm, J Wardlaw and B Caldecott: Delivering a 21st Centre for Cities, Jul. 2015. www.centreforcities.org/ Century Infrastructure for Britain. Policy Exchange, wp-content/uploads/2015/07/15-07-06-Mapping- Sept. 2009. https://policyexchange.org.uk/publication/ Britains-Public-Finances.pdf delivering-a-21st-century-infrastructure-for-britain/ 44 D Rudlin and N Falk: Uxcester Garden City. Second 59 T Hunt: Building Jerusalem: The Rise and Fall of the Stage Submission for the 2014 Wolfson Economics Victorian City. Weidenfeld & Nicolson, 2004 Prize. URBED, Jun. 2014. http://urbed.coop/sites/default/ 60 T Hunt: ‘Cities can provide a sanctuary against Trump – files/20140815%20URBED%20Wolfson%20Stage%202_ and Brexit’. The Observer, 11 Dec. 2016. low%20res3.pdf www.theguardian.com/commentisfree/2016/dec/11/ 45 N Falk: ‘Funding large-scale new settlements’. Town & trump-brexit-cities-sanctuary-chicago-mayor Country Planning, 2014, Vol. 83, Apr., 183-88 61 R Harman and N Falk: ‘‘Swift Rail’ – funding local rail 46 Fixing Our Broken Housing Market. Housing White transit through smarter growth’. Public Money & Paper. Cm 9352. Department for Communities and Management, 2016, 2016, Vol. 36 (6), 463-7 Local Government, Feb. 2017. www.gov.uk/ 62 Governing the City. OCED, Feb. 2018. government/collections/housing-white-paper www.oecd.org/governance/governing-the-city- 47 Transport for New Homes: Project Summary 9789264226500-en.htm; andThe Metropolitan Century: Recommendations. Transport for New Homes, Jul. 2018. Understanding Urbanisation and its Consequences. www.transportfornewhomes.org.uk/wp-content/uploads/ OECD, 2015. www.oecd.org/gov/the-metropolitan- 2018/07/transport-for-new-homes-summary-web.pdf century-9789264228733-en.htm 48 D Rudlin and N Falk: Uxcester Garden City. Second 63 The State of European Cities 2016: Cities Leading the Stage Submission for the 2014 Wolfson Economics Way to a Better Future. European Commission and Prize. URBED, Jun. 2014. http://urbed.coop/sites/default/ UN Habitat, Dec. 2016. https://ec.europa.eu/regional_ files/20140815%20URBED%20Wolfson%20Stage%202_ policy/en/policy/themes/urban-development/cities-report low%20res3.pdf 64 S Monk, C Whitehead, G Burgess and C Tang: 49 D Reynolds: The Long Shadow: The Great War and the International Review of Land Supply and Planning Twentieth Century. Simon & Schuster, 2013 Systems. Joseph Rowntree Foundation, Mar. 2013. 50 B Munday and N Falk:The ABC of Housing Growth and www.jrf.org.uk/report/international-review-land-supply- Infrastructure. Housing Forum, Jan. 2014. and-planning-systems www.housingforum.org.uk/resources/influencing/ 65 T Crook, J Henneberry and C Whitehead: Planning housing-forum-reports/the-abc-of-housing-growth-and- Gain: Providing Infrastructure and Affordable Housing. infrastructure---january-2014 Wiley, 2015 51 Recommendations for changing our system for land 66 The Uthwatt Report. Briefing. Mills & Reeve, Aug. 2010. assembly are based on eight case studies in Capital www.mills-reeve.com/insights/publications/the- Gains: A Better Land Assembly Model for London. uthwatt-report-%E2%80%93-briefing-note URBED with Dentons, Gerald Eve and Housing 67 J Mirrlees, S Adam, T Besley, et al.: Tax by Design. Futures, for the Greater London Authority, Feb. 2018. Final Report of the Mirrlees Review. Institute of Fiscal http://urbed.coop/projects/capital-gains-better-land- Studies, Sept. 2011. www.ifs.org.uk/publications/5353 assembly-model-london 68 A Corlett and L Gardiner: Home Affairs: Options for 52 Inclusive Growth Commission: Making Our Economy Reforming Property Taxation. Resolution Foundation, Work for Everyone. Inclusive Growth Commission Mar. 2018. www.resolutionfoundation.org/publications/ Final Report. RSA Mar. 2017. www.thersa.org/discover/ home-affairs-options-for-reforming-property-taxation/ publications-and-articles/reports/final-report-of-the- 69 T Aubrey: Reforming the Land Market. Working Paper inclusive-growth-commission 01/2018. Centre for Progressive Policy, Apr. 2018. 53 N Karadimitriou and J Manns: ‘Our Common Estate: www.progressive-policy.net/downloads/files/Housing- planning for land in large-scale development’. Journal report.pdf of Urban Regeneration & Renewal, 2016, Vol. 9 (2), 70 T Aubrey: Bridging the Infrastructure Gap. Centre for 139-48 Progressive Policy, Jun. 2016. www.progressive- 54 N Falk: The Steps to Quality Growth: Towards a New policy.net/downloads/files/Bridging-the-infrastructure- Business Model for House-Building. URBED, for gap.pdf Cambridgeshire Horizons, Jun. 2010. 71 D Helm, J Wardlaw and B Caldecott: Delivering a 21st http://urbed.coop/sites/default/files/The%20steps Century Infrastructure for Britain. Policy Exchange, %20to%20quality%20growth.pdf Sept. 2009. https://policyexchange.org.uk/publication/ 55 A New Approach to Developer Contributions: A Report delivering-a-21st-century-infrastructure-for-britain/; by the CIL Review Team. Peace Review, Oct. 2016. and ‘The time may be right for land-value taxes’. The www.gov.uk/government/publications/community- Economist, 9 Aug. 2018. www.economist.com/briefing/ infrastructure-levy-review-report-to-government 2018/08/09/the-time-may-be-right-for-land-value-taxes 56 D Helm, J Wardlaw and B Caldecott: Delivering a 21st 72 S Mahmoud: What Lies Beneath: How to Fix the Century Infrastructure for Britain. Policy Exchange, Broken Land System at the Heart of our Housing Sept. 2009. https://policyexchange.org.uk/publication/ Crisis. New Economics Foundation, Jul. 2018. delivering-a-21st-century-infrastructure-for-britain/; and https://neweconomics.org/2018/07/what-lies-beneath

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 45 73 G Monbiot (Ed.) et al.: Land for the Many: Changing 93 A New Generational Contract. Final Report of the the Way Our Fundamental Asset Is Used, Owned and Intergenerational Commission. Resolution Foundation, Governed. Labour Party, Jun. 2019. May 2018. www.resolutionfoundation.org/advanced/a- http://labour.org.uk/wp-content/uploads/2019/06/12081_ new-generational-contract/ 19-Land-for-the-Many.pdf 94 T Piketty: Capital in the 21st Century. Harvard 74 N Falk and J Manns: ‘Capital gains and spatial University Press, 2014 inequalities: developing fairer suburbs’. The Political 95 Fixing Our Broken Housing Market. Housing White Quarterly, 2019, Vol. 90 (1), 23-31. Paper. Cm 9352. Department for Communities and https://onlinelibrary.wiley.com/doi/full/10.1111/1467- Local Government, Feb. 2017. www.gov.uk/government/ 923X.12650 collections/housing-white-paper 75 D Olsen: The Growth of Victorian London. Holmes & 96 See, for example, The Redfern Review into the Decline Meier, 1976 of Home Ownership. 2016 https://britainthinks.com/pdfs/ 76 S Yates and P Murray: Great Estates: How London’s TW082_RR_online_PDF.pdf Landowners Shape the City. New London Architecture, 97 P Jefferys and T Lloyd: New Civic Housebuilding: 2013 Rediscovering our Tradition of Building Beautiful and 77 P Hall, with N Falk: Good Cities, Better Lives: How Affordable Homes. Shelter, Mar. 2017. Europe Discovered the Lost Art of Urbanism. https://england.shelter.org.uk/__data/assets/pdf_file/ Routledge, 2014 0005/1348223/2017_03_02_New_Civic_Housebuilding_ Policy_Report.pdf 78 T Piketty: Capital in the 21st Century. Harvard University Press, 2014 98 In advance of the Centre for Cities publication, see P Cheshire: ‘How to capture land value rises’. 79 C Simpson: The German Sparkassen (Savings Banks): PlanningResource, 10 Feb. 2017. A Commentary and a Case Study. Civitas, Jan. 2013. www.planningresource.co.uk/article/1423777/capture- www.civitas.org.uk/content/files/SimpsonSparkassen.pdf land-value-rises; see also Paul Cheshire’s entry, ‘Land 80 P Hall, with N Falk: Good Cities, Better Lives: How prices: the dog that lost its bark’ (16 Dec. 2013), in the Europe Discovered the Lost Art of Urbanism. LSE Urban and Spatial Programme blog, explaining Routledge, 2014 why there are no recent maps, at http://spatial- 81 B Katz and J Nowak: The New Localism: How Cities economics.blogspot.co.uk/ search?updated-min=2013- Can Thrive in an Age of Populism. Brookings 01-01T00:00:00Z&updated-max=2014-01- Institution, 2018 01T00:00:00Z&max-results=48 82 H Dimitriou, R Harman and E Ward: Incorporating 99 Other reports deal with the complexities of land value Principles of Sustainable Development within the capture and taxation, such as those produced for the Design and Delivery of Major Projects. UCL Omega UK2070 Commission under Lord Bob Kerslake – see Centre, Oct. 2010. www.omegacentre.bartlett.ucl.ac.uk/ www.UK2070.org.uk wp-content/uploads/2014/10/OMEGA-3-Draft-chapter- 100 N Falk: Land for Housing: Sharing the Uplift in Land for-RAMP-handbook.pdf Values from Growth and Regeneration. URBED, 83 A New Generational Contract. Final Report of the May 2019. http://urbed.coop/news/land-housing-urbed- Intergenerational Commission. Resolution Foundation, trust-research May 2018. www.resolutionfoundation.org/advanced/a- 101 N Falk: ‘Urban policy and new economic new-generational-contract/ powerhouses’. Town & Country Planning, 2015, Vol. 84, 84 National Infrastructure Assessment. National Aug., 346-50 Infrastructure Commission, Jul. 2018. Chap. 4. 102 P Hall, with N Falk: Good Cities, Better Lives: How www.nic.org.uk/wp-content/uploads/CCS001_ Europe Discovered the Lost Art of Urbanism. CCS0618917350-001_NIC-NIA_Accessible.pdf#page=69 Routledge, 2014 85 A King and I Crewe: The Blunders of Our 103 See, for example, the German Land Act quoted in Governments. Oneworld Publications, 2013 B Munday and N Falk: The ABC of Funding Housing 86 Private communication with Sir Michael Lyons Growth and Infrastructure. The Housing Forum, Jan. 2014. www.housingforum.org.uk/resources/ 87 C Murray: The First Interval: Evaluating ACT’s Land influencing/housing-forum-reports/the-abc-of-housing- Value Tax Transition. Prosper Australia, Sept. 2016. growth-and-infrastructure—-january-2014 www.prosper.org.au/2016/09/12/the-first-interval- evaluating-acts-land-value-tax-transition-full-report/ 104 N Falk: Land for Housing: Sharing the Uplift in Land Values from Growth and Regeneration. URBED, May 88 Private communication with UN economist 2019. http://urbed.coop/news/land-housing-urbed-trust- 89 J Konvitz: Cities in Crisis. Manchester University Press, research 2016 105 C Linton and J Bray: The Place to Be: How Transit 90 H Suzuki et al.: Financing Transit-Oriented Oriented Growth Can Support Good Growth in the City Development with Land Values. World Bank Group, Regions. Urban Transport Group, Jan. 2019. Jan. 2015. www.worldbank.org/en/topic/ www.urbantransportgroup.org/resources/types/reports/ urbandevelopment/publication/financing-transit- place-be-how-transit-oriented-development-can- oriented-development-with-land-values support-good-growth-city 91 The State of European Cities 2016: Cities Leading the 106 Transport-Orientated Development: Assessing the Way to a Better Future. European Commission and UN Opportunity for Ireland. National Economic and Social Habitat, Dec. 2016. https://ec.europa.eu/regional_ policy/ Council, Republic of Ireland, Jun. 2019. en/policy/themes/urban-development/cities-report www.nesc.ie/publications/transport-orientated- 92 T Travers: Raising the Capital: Report of the London development-assessing-the-opportunity-for-ireland/ Finance Commission. London Finance Commission, 107 K Barker: Housing: Where’s the Plan? London 2013. http://eprints.lse.ac.uk/63397/1/Raising_capital.pdf Publishing Partnership, 2014

46 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 108 C De Magalhaes et al.: Planning Risk and 125 The author and Jonathan Manns are part of the Development: How Greater Planning Certainty Would European Union funded COST (European Co-operation Affect Residential Development. RTPI, Apr. 2018. in Science and Technology) research network on Land http://thinkhouse.org.uk/2018/RTPI.pdf Value Capture and Increasing Property Values – see 109 N Falk: Oxford Futures: Achieving Smarter Growth in www.puvaca.eu Central Oxfordshire. Oxford Civic Society, Mar. 2014. 126 N Falk: Land for Housing: Sharing the Uplift in Land www.oxfordfutures.org.uk/wp-content/uploads/ Values from Growth and Regeneration. URBED, documents/Oxford_Futures_Full_Report.pdf May 2019. http://urbed.coop/news/land-housing-urbed- 110 N Falk and J Manns: ‘Capital gains and spatial trust-research inequalities: developing fairer suburbs’. The Political 127 P Collier: The Future of Capitalism: Facing the New Quarterly, 2019, Vol. 90(1), 23-31. Anxieties. Allen Lane, 2018 (Chapter 7: ‘The geographic https://onlinelibrary.wiley.com/doi/full/10.1111/1467- divide: booming metropolis, broken cities’) 923X.12650 – see also N Falk: Oxford Futures: 128 J Mirrlees, S Adam, T Besley, et al.: Tax by Design. Achieving Smarter Growth in Central Oxfordshire. Final Report of the Mirrlees Review. Institute of Fiscal URBED, for Oxford Civic Society, Feb. 2019. Studies, Sept. 2011. www.ifs.org.uk/publications/5353 www.oxfordfutures.org.uk/wp-content/uploads/ 129 L Murphy: The Invisible Land: The Hidden Force 2019/02/Oxfordshire-Futures-2050.pdf Driving the UK’s Unequal Economy and Broken 111 B Katz and J Nowak: The New Localism: How Cities Can Housing Market. Discussion Paper. IPPR Commission Thrive in an Age of Populism. Brookings Institution, 2018 on Economic Justice. IPPR, Aug. 2018. 112 C Murray: The First Interval: Evaluating ACT’s Land www.ippr.org/files/2018-08/cej-land-tax-august18.pdf Value Tax Transition. Prosper Australia, Sept. 2016. 130 N Falk and J Rudlin: Learning from International www.prosper.org.au/2016/09/12/the-first-interval- Examples of Affordable Housing. URBED Trust, for evaluating-acts-land-value-tax-transition-full-report/ Shelter, Jul. 2018. https://england.shelter.org.uk/__data/ 113 C Whitehead, K Scanlon and N Holman: Rising to the assets/pdf_file/0008/1641176/International_examples_ Challenge: London’s Housing Crisis. LSE, Dec. 2016. of_affordable_housing_-_Shelter_URBED_Trust.pdf http://lselondonhousing.org/wp-content/ 131 D Merlin-Jones: The Industrial and Commercial Finance uploads/2016/12/Rising-to-the-challenge-final-report.pdf Corporation: Lessons from the Past for the Future. 114 Figure from Thomas Aubrey at the Centre for Civitas, Oct. 2010. www.civitas.org.uk/pdf/ICFC.pdf Progressive Capitalism 132 L Noring: ‘Self-help for cities’. Land Journal, 2019, 115 P Hall, with N Falk: Good Cities, Better Lives: How Jan./Feb., 23-24. www.rics.org/globalassets/rics- Europe Discovered the Lost Art of Urbanism. website/media/news/journals/land/land-journal-jan-feb- Routledge, 2014 19-rics.pdf 116 J Manns and N Falk: Re/Shaping London: Unlocking 133 H Dimitriou, R Harman and E Ward: Incorporating Sustainable Growth in West London and Beyond. Principles of Sustainable Development within the London Society, Oct. 2016. www.londonsociety.org.uk/ Design and Delivery of Major Projects. UCL Omega white-paper-reshaping-london/ Centre, Oct. 2010. www.omegacentre.bartlett.ucl.ac.uk/ 117 T Travers and S Glaister: Funding London’s wp-content/uploads/2014/10/OMEGA-3-Draft-chapter- Development. London Development Agency, 2003 for-RAMP-handbook.pdf (subsequently developed in work for the London 134 N Falk and J Rudlin: Learning from International Assembly and others) Examples of Affordable Housing. URBED Trust, for 118 Oxford Central West: Summary of Workshop Findings Shelter, Jul. 2018. https://england.shelter.org.uk/__data/ on Development around Oxford Station. Oxford Civic assets/pdf_file/0008/1641176/International_examples_ Society, URBED and Academy of Urbanism, Mar. 2016, of_affordable_housing_-_Shelter_URBED_Trust.pdf www.oxfordfutures.org.uk/uploads/Oxford_Central_ 135 D Dorling: All that is Solid: How the Great Housing West_Report.pdf Disaster Defines our Times, and What We Can Do 119 Funding London’s Transport. RICS, 2003 about It. Penguin, 2014 120 N Falk and J Manns: ‘Capital gains and spatial 136 New Towns Act 2015?TCPA, Feb. 2014. inequalities: developing fairer suburbs’. The Political www.tcpa.org.uk/new-towns-act-2015 Quarterly, 2019, Vol. 90 (1), 23-31. 137 J Morphet and B Clifford: Local Authority Direct Delivery https://onlinelibrary.wiley.com/doi/full/10.1111/1467- of Housing: Continuation Research. RTPI, Jul. 2019. 923X.12650 www.rtpi.org.uk/media/3426186/lahousing2019.pdf 121 These areas have all been the subject of planning and 138 New Towns and Garden Cities – Lessons for Tomorrow. development frameworks produced by URBED – see Stage 2: Lessons for Delivering a New Generation of www.urbed.coop Garden Cities. TCPA, Sept. 2015. 122 See for example, Creating Space for Beauty. Interim www.tcpa.org.uk/lessons-for-tomorrow-stage-2-report Report. Building Better, Building Beautiful 139 M Taylor, edited by C Walker: Garden Villages: Commission, Jul. 2019. Empowering Localism to Solve the Housing Crisis. Policy www.gov.uk/government/publications/creating-space- Exchange, Feb. 2015. https://policyexchange.org.uk/wp- for-beauty-interim-report-of-the-building-better- content/uploads/2016/09/garden-villages.pdf building-beautiful-commission 140 See the Locality website, at www.locality.org.uk; and 123 Capital Gains: A Better Land Assembly Model for the National Community Land Trust Network website, London. URBED with Dentons, Gerald Eve and at www.communitylandtrusts.org.uk Housing Futures, for the Greater London Authority, 141 N Falk: Land for Housing: Sharing the Uplift in Land Feb. 2018. http://urbed.coop/projects/capital-gains- Values from Growth and Regeneration. URBED, better-land-assembly-model-london May 2019. http://urbed.coop/news/land-housing-urbed- 124 ibid. trust-research

T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values 47 142 G Monbiot (Ed.) et al.: Land for the Many: Changing 147 T Aubrey: Gathering the Windfall: How Changing Land the Way Our Fundamental Asset Is Used, Owned and Law Can Unlock England’s Housing Supply Potential. Governed. Labour Party, Jun. 2019. Working Paper 03/2018. Centre for Progressive Policy, http://labour.org.uk/wp-content/uploads/2019/06/12081_ Sept. 2018. www.progressive-policy.net/downloads/ 19-Land-for-the-Many.pdf files/Housing-report.pdf 143 Capital Gains: A Better Land Assembly Model for 148 Housing for the Many. Labour Party Green Paper. London. URBED with Dentons, Gerald Eve and Labour Party, Apr. 2019. http://labour.org.uk/wp-content/ Housing Futures, for the Greater London Authority, uploads/2018/04/Housing-for-the-Many-final.pdf Feb. 2018. http://urbed.coop/projects/capital-gains- 149 N Falk: Funding Housing and Local Growth: How a better-land-assembly-model-london British Investment Bank Can Help. Smith Institute, 144 The Oxfordshire Land Value Tax Study. Oxfordshire May 2014. www.smith-institute.org.uk/wp- County Council/Vale of White Horse District Council, content/uploads/2015/11/BIB-v5.pdf Feb. 2005. www.labourland.org/downloads/papers/ 150 Ibid. oxfordshire_land_value_tax_study.pdf 151 Ibid. 145 L McGough and P Swinney: Mapping Britain’s Public 152 R Harman and N Falk: ‘‘Swift Rail’ – funding local rail Finances: Where Is Tax Raised and Where Is it Spent? transit through smarter growth’. Public Money & Centre for Cities, Jul. 2015. Management, 2016, Vol. 36 (6), 463-7 www.centreforcities.org/wp-content/uploads/ 153 L Noring: ‘Self-help for cities’. Land Journal, 2019, 2015/07/15-07-06-Mapping-Britains-Public-Finances.pdf Jan./Feb., 23-24. www.rics.org/globalassets/rics- 146 D Helm, J Wardlaw and B Caldecott: Delivering a 21st website/media/news/journals/land/land-journal-jan-feb- Century Infrastructure for Britain. Policy Exchange, 19-rics.pdf Sept. 2009. https://policyexchange.org.uk/publication/ 154 D Bowie: Radical Solutions to the Housing Supply delivering-a-21st-century-infrastructure-for-britain/ Crisis. Policy Press, 2017

Town & Country Planning Tomorrow Series Paper 20: Sharing the Uplift in Land Values – a Fairer System for Funding and Delivering Housing Growth

September 2019. Copyright © Nicholas Falk, the TCPA and the URBED Trust Dr Nicholas Falk BA MBA, Hon FRIBA, Hon MRTPI is Executive Director of the URBED Trust (www.urbedtrust.com), an economist and urbanist, and a frequent contributor toTown & Country Planning. He set up URBED in 1976, and was the co-winner of the 2014 Wolfson Economics Prize for showing how to build Garden Cities that are visionary, viable, and popular. He dedicates this Tomorrow Series Paper to the late Professsor Sir Peter Hall, whose last book, Good Cities, Better Lives, shows how much we can learn from other European cities.

The Town and Country Planning Association produces the Tomorrow Series in order to promote debate and encourage innovative thought. Views expressed in Tomorrow Series Papers are those of the authors and do not necessarily represent the views of the TCPA.

The URBED Trust’s aim is to publish research and opinions about sustainable urbanism, and to stimulate debate about how to improve urban life. The views contained in this publication are those of the author and do not necessarily represent those of the Trust or its individual trustees.

Acknowledgements This Paper could not have been produced without the comments, help and encouragement the author has received from many experts and friends. He would particularly like to mention David Boyle, Duncan Bowie, Paul Cheshire, Graham Garbutt, Vincent Goodstadt, Stephen Hill, Brian Love, Jonathan Manns, Neil Murphy, Jonathan Naughton, Pete Redman, Kath Scanlon, Richard Simmons, Peter Thompson, and of course his colleagues at the URBED Trust, and in particular David Rudlin. The proposals have also benefited from a workshop organised by the UK2070 Commission to consider an earlier ‘think-piece’ on sharing land value uplift. The conclusions are the author’s alone, but credit for the way they are presented must go to his assistant, Jonah Rudlin, and to Rosie Pearson, who helped with the final, 20th version.

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48 T&CP Tomorrow Series Paper 20: Sharing the Uplift in Land Values